UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 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, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
CommissionFile Number
Registrant; State of Incorporation;Address; and Telephone Number
I.R.S. EmployerIdentification No.
1-5324
EVERSOURCE ENERGY(a Massachusetts voluntary association)300 Cadwell DriveSpringfield, Massachusetts 01104Telephone: (413) 785-5871
04-2147929
0-00404
THE CONNECTICUT LIGHT AND POWER COMPANY(a Connecticut corporation)107 Selden StreetBerlin, Connecticut 06037-1616 Telephone: (860) 665-5000
06-0303850
1-02301
NSTAR ELECTRIC COMPANY(a Massachusetts corporation)800 Boylston StreetBoston, Massachusetts 02199Telephone: (617) 424-2000
04-1278810
1-6392
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE (a New Hampshire corporation)Energy Park780 North Commercial StreetManchester, New Hampshire 03101-1134Telephone: (603) 669-4000
02-0181050
0-7624
WESTERN MASSACHUSETTS ELECTRIC COMPANY(a Massachusetts corporation)300 Cadwell DriveSpringfield, Massachusetts 01104Telephone: (413) 785-5871
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
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
LargeAccelerated Filer
AcceleratedFiler
Non-acceleratedFiler
Eversource Energy
The Connecticut Light and Power Company
NSTAR Electric Company
Public Service Company of New Hampshire
Western Massachusetts Electric Company
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):
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, 2016
Eversource EnergyCommon shares, $5.00 par value
317,207,036 shares
The Connecticut Light and Power CompanyCommon stock, $10.00 par value
6,035,205 shares
NSTAR Electric CompanyCommon stock, $1.00 par value
100 shares
Public Service Company of New HampshireCommon stock, $1.00 par value
301 shares
Western Massachusetts Electric CompanyCommon 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
NSTAR Electric
PSNH
WMECO
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:
ADIT
Accumulated Deferred Income Taxes
AFUDC
Allowance For Funds Used During Construction
AOCI
Accumulated Other Comprehensive Income/(Loss)
ARO
Asset Retirement Obligation
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
ESOP
Employee Stock Ownership Plan
ESPP
Employee Share Purchase Plan
Eversource 2015 Form 10-K
The Eversource Energy and Subsidiaries 2015 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
i
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
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
Northern Pass
The high voltage direct current transmission line project from Canada into New Hampshire
NOx
Nitrogen oxides
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 SUBSIDIARIESTHE CONNECTICUT LIGHT AND POWER COMPANYNSTAR ELECTRIC COMPANY AND SUBSIDIARYPUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARYWESTERN MASSACHUSETTS ELECTRIC COMPANY
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
ITEM 1.
Financial Statements (Unaudited)
Eversource Energy and Subsidiaries (Unaudited)
Condensed Consolidated Balance Sheets
1
Condensed Consolidated Statements of Income
2
Condensed Consolidated Statements of Comprehensive Income
Condensed Consolidated Statements of Cash Flows
3
The Connecticut Light and Power Company (Unaudited)
Condensed Balance Sheets
4
Condensed Statements of Income
5
Condensed Statements of Comprehensive Income
Condensed Statements of Cash Flows
6
NSTAR Electric Company and Subsidiary (Unaudited)
7
8
9
Public Service Company of New Hampshire and Subsidiary (Unaudited)
10
11
12
Western Massachusetts Electric Company (Unaudited)
13
14
15
Combined Notes to Condensed Consolidated Financial Statements (Unaudited)
16
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Eversource Energy and Subsidiaries
31
42
NSTAR Electric Company and Subsidiary
44
Public Service Company of New Hampshire and Subsidiary
46
48
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
50
ITEM 4.
Controls and Procedures
iii
PART II – OTHER INFORMATION
Legal Proceedings
51
ITEM 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 6.
Exhibits
52
SIGNATURES
54
iv
EVERSOURCE ENERGY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
December 31,
(Thousands of Dollars)
2016
2015
ASSETS
Current Assets:
Cash and Cash Equivalents
$
50,966
23,947
Receivables, Net
890,977
775,480
Unbilled Revenues
192,084
202,647
Taxes Receivable
44,171
305,359
Fuel, Materials, Supplies and Inventory
359,225
336,476
Regulatory Assets
919,311
845,843
Prepayments and Other Current Assets
133,813
129,034
Total Current Assets
2,590,547
2,618,786
Property, Plant and Equipment, Net
20,096,693
19,892,441
Deferred Debits and Other Assets:
3,703,486
3,737,960
Goodwill
3,519,401
Marketable Securities
502,948
516,478
Other Long-Term Assets
299,400
295,243
Total Deferred Debits and Other Assets
8,025,235
8,069,082
Total Assets
30,712,475
30,580,309
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Notes Payable
769,500
1,160,953
Long-Term Debt - Current Portion
378,883
228,883
Accounts Payable
646,440
813,646
Obligations to Third Party Suppliers
135,978
128,564
Renewable Portfolio Standards Compliance Obligations
170,021
130,354
Regulatory Liabilities
111,414
107,759
Other Current Liabilities
381,678
419,631
Total Current Liabilities
2,593,914
2,989,790
Deferred Credits and Other Liabilities:
5,284,255
5,147,678
526,452
513,595
Derivative Liabilities
344,458
337,102
Accrued Pension, SERP and PBOP
1,355,422
1,407,288
Other Long-Term Liabilities
869,220
871,499
Total Deferred Credits and Other Liabilities
8,379,807
8,277,162
Capitalization:
Long-Term Debt
9,144,687
8,805,574
Noncontrolling Interest - Preferred Stock of Subsidiaries
155,568
Equity:
Common Shareholders' Equity:
Common Shares
1,669,392
1,669,313
Capital Surplus, Paid In
6,243,908
6,262,368
Retained Earnings
2,900,351
2,797,355
Accumulated Other Comprehensive Loss
(65,175)
(66,844)
Treasury Stock
(309,977)
Common Shareholders' Equity
10,438,499
10,352,215
Total Capitalization
19,738,754
19,313,357
Total Liabilities and Capitalization
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
(Thousands of Dollars, Except Share Information)
Operating Revenues
2,055,635
2,513,431
Operating Expenses:
Purchased Power, Fuel and Transmission
754,859
1,162,049
Operations and Maintenance
320,136
333,382
Depreciation
173,986
163,837
Amortization of Regulatory Assets, Net
20,997
60,604
Energy Efficiency Programs
137,175
146,603
Taxes Other Than Income Taxes
159,946
149,481
Total Operating Expenses
1,567,099
2,015,956
Operating Income
488,536
497,475
Interest Expense
98,212
94,843
Other Income, Net
2,011
5,727
Income Before Income Tax Expense
392,335
408,359
Income Tax Expense
146,302
153,226
Net Income
246,033
255,133
Net Income Attributable to Noncontrolling Interests
1,880
1,879
Net Income Attributable to Common Shareholders
244,153
253,254
Basic and Diluted Earnings Per Common Share
0.77
0.80
Dividends Declared Per Common Share
0.45
0.42
Weighted Average Common Shares Outstanding:
Basic
317,517,141
317,090,841
Diluted
318,481,050
318,491,188
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other Comprehensive Income, Net of Tax:
Qualified Cash Flow Hedging Instruments
534
509
Changes in Unrealized Gains on Marketable Securities
264
132
Changes in Funded Status of Pension, SERP and PBOP Benefit Plans
871
954
Other Comprehensive Income, Net of Tax
1,669
1,595
Comprehensive Income Attributable to Noncontrolling Interests
(1,880)
(1,879)
Comprehensive Income Attributable to Common Shareholders
245,822
254,849
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities:
Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities:
Deferred Income Taxes
141,132
148,193
Pension, SERP and PBOP Expense
11,583
26,495
Pension and PBOP Contributions
(30,383)
(26,659)
Regulatory Underrecoveries, Net
(82,772)
(110,748)
Other
(16,532)
(11,891)
Changes in Current Assets and Liabilities:
Receivables and Unbilled Revenues, Net
(133,965)
(328,299)
(22,748)
68,172
Taxes Receivable/Accrued, Net
279,106
272,021
(76,317)
(59,496)
Other Current Assets and Liabilities, Net
(10,156)
34,179
Net Cash Flows Provided by Operating Activities
499,964
491,541
Investing Activities:
Investments in Property, Plant and Equipment
(431,472)
(362,586)
Proceeds from Sales of Marketable Securities
136,805
114,730
Purchases of Marketable Securities
(135,427)
(116,735)
Other Investing Activities
5,494
66
Net Cash Flows Used in Investing Activities
(424,600)
(364,525)
Financing Activities:
Cash Dividends on Common Shares
(141,157)
(132,433)
Cash Dividends on Preferred Stock
Decrease in Notes Payable
(391,453)
(399,575)
Issuance of Long-Term Debt
500,000
450,000
Other Financing Activities
(13,855)
(10,805)
Net Cash Flows Used in Financing Activities
(48,345)
(94,692)
Net Increase in Cash and Cash Equivalents
27,019
32,324
Cash and Cash Equivalents - Beginning of Period
38,703
Cash and Cash Equivalents - End of Period
71,027
THE CONNECTICUT LIGHT AND POWER COMPANY
CONDENSED BALANCE SHEETS
Cash
16,482
1,057
379,758
352,536
Accounts Receivable from Affiliated Companies
21,377
21,214
93,853
99,879
4,650
137,643
324,559
268,318
Materials and Supplies
48,083
43,124
49,753
32,234
938,515
956,005
7,231,214
7,156,809
1,379,484
1,369,028
113,017
111,115
1,492,501
1,480,143
9,662,230
9,592,957
Notes Payable to Eversource Parent
115,500
277,400
150,000
-
246,475
267,764
Accounts Payable to Affiliated Companies
59,275
66,456
61,674
60,746
62,999
61,155
92,953
91,820
118,697
110,631
907,573
935,972
1,881,725
1,820,865
77,744
74,830
342,698
336,189
267,706
271,056
131,953
133,446
2,701,826
2,636,386
2,614,324
2,763,682
Preferred Stock Not Subject to Mandatory Redemption
116,200
Common Stockholder's Equity:
Common Stock
60,352
2,056,376
1,910,663
1,206,035
1,170,278
(456)
(576)
Common Stockholder's Equity
3,322,307
3,140,717
6,052,831
6,020,599
The accompanying notes are an integral part of these unaudited condensed financial statements.
CONDENSED STATEMENTS OF INCOME
735,317
804,917
Purchased Power and Transmission
272,600
333,619
110,843
117,357
56,969
52,902
9,878
48,306
38,090
42,807
75,465
68,080
563,845
663,071
171,472
141,846
36,498
36,624
936
2,159
135,910
107,381
48,863
38,147
87,047
69,234
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
111
120
115
Comprehensive Income
87,167
69,349
CONDENSED STATEMENTS OF CASH FLOWS
58,363
19,340
(70,195)
(67,393)
2,216
6,205
(37,501)
(124,969)
141,951
158,163
(5,040)
(20,194)
(22,533)
(7,727)
221,155
133,867
(147,131)
(127,631)
Proceeds from the Sale of Property, Plant and Equipment
9,047
49
1,981
(138,035)
(125,650)
Cash Dividends on Common Stock
(49,900)
(49,000)
(1,390)
(Decrease)/Increase in Notes Payable to Eversource Parent
(161,900)
56,700
Capital Contribution from Eversource Parent
145,700
(205)
(65)
Net Cash Flows (Used in)/Provided by Financing Activities
(67,695)
6,245
Net Increase in Cash
15,425
14,462
Cash - Beginning of Period
2,356
Cash - End of Period
16,818
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
3,504
3,346
256,760
229,936
2,990
4,034
28,596
29,464
33,234
70,236
Materials, Supplies and Inventory
115,809
75,487
361,307
348,408
13,957
11,448
816,157
772,359
5,700,068
5,655,458
1,108,037
1,112,977
58,323
62,467
1,166,360
1,175,444
7,682,585
7,603,261
148,500
62,500
200,000
189,594
228,250
66,673
38,648
62,588
56,718
132,386
104,847
4,997
3,281
58,776
72,007
863,514
766,251
1,793,183
1,760,339
267,440
264,352
188,974
209,153
123,336
120,939
2,372,933
2,354,783
1,829,984
1,829,766
43,000
995,378
1,577,241
1,613,538
Accumulated Other Comprehensive Income
535
545
2,573,154
2,609,461
4,446,138
4,482,227
614,216
766,808
254,336
401,867
94,696
75,824
51,886
48,768
Amortization of Regulatory Assets/(Liabilities), Net
4,683
(5,565)
66,243
55,417
32,555
30,962
504,399
607,273
109,817
159,535
20,889
20,446
Other (Loss)/Income, Net
(334)
602
88,594
139,691
34,101
56,130
54,493
83,561
Other Comprehensive Loss, Net of Tax:
Changes in Funded Status of SERP Benefit Plan
(10)
(180)
Other Comprehensive Loss, Net of Tax
54,483
83,381
32,878
41,297
Pension and PBOP Contributions, Net of Pension, SERP and PBOP Expense
(12,953)
1,164
(16,746)
(103,142)
Bad Debt Expense
6,875
8,049
(10,120)
(21,885)
(30,176)
(90,465)
(40,322)
(13,504)
33,938
96,319
(26,838)
29,210
Accounts Receivable from/Payable to Affiliates, Net
29,069
96,368
19,600
51,157
96,267
221,332
(91,319)
(79,776)
53
(79,723)
(90,300)
(49,500)
(490)
Increase/(Decrease) in Notes Payable
86,000
(86,500)
(4,790)
(136,485)
Increase in Cash and Cash Equivalents
158
5,124
12,773
17,897
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
3,580
1,733
89,138
77,546
7,667
2,352
36,497
38,207
43,128
149,965
156,868
101,633
104,971
5,963
24,302
394,443
449,107
2,881,435
2,855,363
245,760
257,873
34,703
34,176
280,463
292,049
3,556,341
3,596,519
157,100
231,300
64,717
87,925
29,814
24,214
Accrued Taxes
21,231
4,648
4,723
6,898
43,132
39,273
320,717
394,258
723,110
705,894
47,930
47,851
77,218
89,579
50,453
50,746
898,711
894,070
1,071,275
1,071,017
760,134
748,634
511,559
494,901
(6,055)
(6,361)
1,265,638
1,237,174
2,336,913
2,308,191
242,290
284,847
50,214
99,579
59,213
58,428
28,235
25,646
8,518
15,132
3,620
3,772
21,795
19,079
171,595
221,636
70,695
63,211
12,461
11,272
150
382
58,384
52,321
22,326
20,276
36,058
32,045
290
291
306
299
36,364
32,344
21,181
38,767
(2,291)
(288)
(9,166)
2,999
(17,207)
(31,556)
6,903
34,572
57,935
(16,576)
2,100
(4,285)
24,021
17,468
156,287
113,924
(72,338)
(71,905)
84
(2,277)
(72,254)
(74,182)
(19,400)
(26,500)
Decrease in Notes Payable to Eversource Parent
(74,200)
(8,500)
11,500
(86)
(82)
(82,186)
(35,082)
1,847
4,660
489
5,149
WESTERN MASSACHUSETTS ELECTRIC COMPANY
2,269
834
59,324
50,912
8,612
18,633
13,753
15,065
6,431
33,407
61,363
56,166
8,396
7,882
160,148
182,899
1,590,524
1,575,306
131,432
135,010
26,148
24,875
157,580
159,885
1,908,252
1,918,090
143,500
143,400
34,240
58,364
16,740
19,896
11,899
6,395
9,760
13,122
18,404
23,532
234,543
264,709
480,250
470,539
13,775
11,597
19,515
39,566
36,819
551,488
538,470
517,200
517,329
10,866
391,398
205,467
198,140
(2,710)
(2,822)
605,021
597,582
1,122,221
1,114,911
128,095
152,864
39,563
69,661
21,805
19,784
11,371
10,375
1,212
3,927
10,856
11,075
10,232
9,437
95,039
124,259
33,056
28,605
6,004
6,823
(149)
575
26,903
22,357
10,076
9,113
16,827
13,244
109
85
112
86
16,939
13,330
Adjustments to Reconcile Net Income to Net Cash Flows Provided by/(Used in) Operating Activities:
9,921
12,759
(6,100)
(14,442)
(541)
(1,197)
2,197
(26,298)
26,976
64
(11,011)
(136)
65
Net Cash Flows Provided by/(Used in) Operating Activities
50,716
(1,418)
(39,891)
(35,899)
479
23,249
(466)
(23,442)
(39,878)
(36,092)
(9,500)
(9,300)
Increase in Notes Payable to Eversource Parent
100
49,100
(3)
(245)
(9,403)
39,555
1,435
2,045
COMBINED NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout the combined notes to the unaudited condensed financial statements.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
Basis of Presentation
Eversource Energy is a public utility holding company primarily engaged, through its wholly owned regulated utility subsidiaries, in the energy delivery business. Eversource Energy's wholly owned regulated utility subsidiaries consist of CL&P, NSTAR Electric, PSNH, WMECO, Yankee Gas and NSTAR Gas. Eversource provides energy delivery service to approximately 3.6 million electric and natural gas customers through these six regulated utilities in Connecticut, Massachusetts and New Hampshire.
The unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH include the accounts of each of their respective subsidiaries. Intercompany transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH and the unaudited condensed financial statements of CL&P and WMECO are herein collectively referred to as the "financial statements."
The combined notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. The accompanying financial statements should be read in conjunction with the entirety of this combined Quarterly Report on Form 10-Q and the 2015 combined Annual Report on Form 10-K of Eversource, CL&P, NSTAR Electric, PSNH and WMECO, 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, 2016 and December 31, 2015, and the results of operations, comprehensive income and cash flows for the three months ended March 31, 2016 and 2015. The results of operations, comprehensive income and cash flows for the three months ended March 31, 2016 and 2015 are not necessarily indicative of the results expected for a full year.
Eversource consolidates CYAPC and YAEC because CL&P's, NSTAR Electric's, PSNH's and WMECO's combined ownership interest in each of these entities is greater than 50 percent. Intercompany transactions between CL&P, NSTAR Electric, PSNH and WMECO and the CYAPC and YAEC companies have been eliminated in consolidation of the Eversource financial statements.
Access Northeast is a natural gas pipeline and storage project (the "Project") being developed jointly by Eversource, Spectra Energy Corp and National Grid. Access Northeast will enhance the Algonquin and Maritimes & Northeast pipeline systems using existing routes. Eversource and Spectra Energy Corp each own a 40 percent interest in the Project, with the remaining 20 percent interest owned by National Grid. The total projected cost for both the pipeline and the LNG storage is expected to be approximately $3 billion, to be funded in proportion to ownership interest (approximately $1.2 billion by Eversource), with anticipated in-service dates commencing in November 2018. Eversource’s cumulative equity investment in the Project as of March 31, 2016 of $14.4 million is presented in Other Long-Term Assets.
Eversource's utility subsidiaries' distribution (including generation) and transmission businesses are subject to rate-regulation that is based on cost recovery and meets the criteria for application of accounting guidance for entities with rate-regulated operations, which considers the effect of regulation on the differences in the timing of the recognition of certain revenues and expenses from those of other businesses and industries. See Note 2, "Regulatory Accounting," for further information.
Certain reclassifications of prior period data were made in the accompanying financial statements to conform to the current period presentation and as a result of the adoption of new accounting guidance. See Note 1B,"Summary of Significant Accounting Policies – Accounting Standards," for further information.
B.
Accounting Standards
Accounting Standards Issued but not Yet Effective: In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which amends existing revenue recognition guidance and is required to be applied retrospectively (either to each reporting period presented or cumulatively at the date of initial application). In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, which defers the effective date of ASU 2014-09 to the first quarter of 2018, with 2017 application permitted. The guidance continues to be interpreted on an industry specific level. The Company is evaluating the requirements and potential impacts of ASU 2014-09 and will implement the standard in the first quarter of 2018. The ASU is not currently expected to have a material impact on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities, which is required to be implemented in the first quarter of 2018. The Company is reviewing the requirements of the ASU. The ASU will remove the available-for-sale designation for equity securities, whereby changes in fair value are recorded in other comprehensive income in shareholders' equity, and will require changes in fair value of all equity securities to be recorded in earnings beginning on January 1, 2018, with the unrealized gain or loss on available-for-sale equity securities as of that date reclassified to retained earnings as a cumulative effect of adoption. The fair value of available-for-sale equity securities subject to this guidance as of March 31, 2016 was approximately $52 million. The remaining available-for-sale equity securities included in marketable securities on the balance sheet are held in nuclear decommissioning trusts and are subject to regulatory accounting treatment and will not be impacted by this guidance. Implementation of the ASU for other financial instruments is not expected to have a material impact on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
In February 2016, the FASB issued ASU 2016-02, Leases, which changes existing lease accounting guidance and is required to be applied in the first quarter of 2019, with earlier application permitted. The ASU is required to be implemented for leases beginning on the date of initial application. For prior periods presented, leases are required to be recognized and measured using a modified retrospective approach. The Company is reviewing the requirements of ASU 2016-02.
Recently Adopted Accounting Standards: In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis. As required, the Company implemented this guidance as of January 1, 2016, which had no effect on the financial position or results of operations of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, effective for annual periods, including interim periods, beginning after December 15, 2015. The ASU amends existing guidance on intangibles and internal-use software and may be applied prospectively or retrospectively. On January 1, 2016, Eversource adopted the new accounting guidance prospectively, which did not have an impact on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The ASU is intended to simplify some aspects of the accounting for share-based payment transactions. The ASU is required to be implemented in the first quarter of 2017, with early adoption permitted. The Company implemented this guidance in the first quarter of 2016. Beginning in the first quarter of 2016, the excess tax benefit associated with the distribution of stock compensation awards, previously recognized in Capital Surplus, Paid In in Common Shareholders' Equity on the balance sheet, are recognized in income tax expense in the income statement. The implementation reduced income tax expense by $2.5 million for the three months ended March 31, 2016. Also, beginning in 2016, in the statement of cash flows, the excess tax benefits are presented as an operating activity rather than a financing activity, and in both periods presented, cash paid to satisfy the statutory income tax withholding obligation previously reflected within operating activities in 2015 is now treated as a financing activity. The cash payments to satisfy this obligation for the three months ended March 31, 2016 and 2015 were $9.1 million and $9.7 million, respectively, and are included in Other Financing Activities on the statements of cash flows.
C.
Provision for Uncollectible Accounts
Eversource, including CL&P, NSTAR Electric, PSNH and WMECO, presents its receivables at estimated net realizable value by maintaining a provision for uncollectible accounts. This provision is determined based upon a variety of judgments and factors, including the application of an estimated uncollectible percentage to each receivable aging category. The estimate is based upon historical collection and write-off experience and management's assessment of collectability from customers. Management continuously assesses the collectability of receivables and adjusts collectability estimates based on actual experience. Receivable balances are written off against the provision for uncollectible accounts when the customer accounts are terminated and these balances are deemed to be uncollectible.
The PURA allows CL&P and Yankee Gas to accelerate the recovery of accounts receivable balances attributable to qualified customers under financial or medical duress (uncollectible hardship accounts receivable) outstanding for greater than 180 days and 90 days, respectively. The DPU allows WMECO and NSTAR Gas to also recover in rates amounts associated with certain uncollectible hardship accounts receivable. Certain of NSTAR Electric's uncollectible hardship accounts receivable are expected to be recovered in future rates, similar to WMECO and NSTAR Gas. These uncollectible customer account balances, which are expected to be recovered in rates, 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, are included in Receivables, Net on the balance sheets, and were as follows:
Total Provision for Uncollectible Accounts
Uncollectible Hardship
(Millions of Dollars)
As of March 31, 2016
As of December 31, 2015
Eversource
197.6
190.7
118.9
118.5
84.9
79.5
71.3
68.1
51.5
52.6
22.7
25.3
9.1
8.7
13.6
14.0
7.1
7.4
D.
Fair Value Measurements
Fair value measurement guidance is applied to derivative contracts that are not elected or designated as "normal purchases or normal sales" (normal) and to the marketable securities held in trusts. Fair value measurement guidance is also applied to valuations of the investments used to calculate the funded status of pension and PBOP plans, the nonrecurring fair value measurements of nonfinancial assets such as goodwill and AROs, and the estimated fair value of preferred stock and long-term debt.
17
Fair Value Hierarchy: In measuring fair value, Eversource uses observable market data when available in order to minimize the use of unobservable inputs. Inputs used in fair value measurements are categorized into three fair value hierarchy levels for disclosure purposes. The entire fair value measurement is categorized based on the lowest level of input that is significant to the fair value measurement. Eversource evaluates the classification of assets and liabilities measured at fair value on a quarterly basis, and Eversource's policy is to recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. The three levels of the fair value hierarchy are described below:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs are observable.
Level 3 - Quoted market prices are not available. Fair value is derived from valuation techniques in which one or more significant inputs or assumptions are unobservable. Where possible, valuation techniques incorporate observable market inputs that can be validated to external sources such as industry exchanges, including prices of energy and energy-related products.
Determination of Fair Value: The valuation techniques and inputs used in Eversource's fair value measurements are described in Note 4, "Derivative Instruments," Note 5, "Marketable Securities," and Note 9, "Fair Value of Financial Instruments," to the financial statements.
E.
Items included within Other Income, Net on the statements of income primarily consist of investment income/(loss), interest income, AFUDC related to equity funds, and equity in earnings of equity method investees. Investment income/(loss) primarily relates to debt and equity securities held in trust. For further information, see Note 5, "Marketable Securities," to the financial statements.
F.
Other Taxes
Gross receipts taxes levied by the state of Connecticut are collected by CL&P and Yankee Gas from their respective customers. These gross receipts taxes are shown separately with collections in Operating Revenues and with payments in Taxes Other Than Income Taxes on the statements of income as follows:
For the Three Months Ended
March 31, 2016
March 31, 2015
42.2
41.9
36.0
33.0
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:
As of March 31, 2015
125.6
110.4
42.3
11.7
21.9
26.8
21.7
10.7
8.3
2.
REGULATORY ACCOUNTING
Eversource's Regulated companies are subject to rate-regulation that is based on cost recovery and meets the criteria for application of accounting guidance for rate-regulated operations, which considers the effect of regulation on the timing of the recognition of certain revenues and expenses. The Regulated companies' financial statements reflect the effects of the rate-making process. The rates charged to the customers of Eversource's Regulated companies are designed to collect each company's costs to provide service, including a return on investment.
Management believes it is probable that each of the Regulated companies will recover their respective investments in long-lived assets, including regulatory assets. If management were to determine that it could no longer apply the accounting guidance applicable to rate-regulated enterprises to any of the Regulated companies' operations, or if management could not conclude it is probable that costs would be recovered from customers in future rates, the costs would be charged to net income in the period in which the determination is made.
18
Regulatory Assets: The components of regulatory assets were as follows:
Benefit Costs
1,796.2
1,828.2
389.6
388.0
Income Taxes, Net
646.6
650.9
Storm Restoration Costs
450.5
436.9
Goodwill-related
479.8
484.9
Regulatory Tracker Mechanisms
604.4
526.5
Contractual Obligations - Yankee Companies
130.4
134.4
Other Regulatory Assets
125.3
134.0
Total Regulatory Assets
4,622.8
4,583.8
Less: Current Portion
919.3
845.8
Total Long-Term Regulatory Assets
3,703.5
3,738.0
NSTAR
Electric
406.3
471.4
161.5
83.4
413.6
479.9
164.2
385.1
3.9
380.8
1.3
444.3
85.7
29.9
31.3
444.4
34.5
31.8
284.2
118.3
26.6
21.4
271.4
110.9
31.5
23.1
411.9
416.3
104.3
325.9
98.1
45.3
45.1
311.0
101.2
40.1
79.9
52.2
11.4
82.0
56.3
11.3
1,704.1
1,469.3
347.4
192.8
1,637.3
1,461.4
362.9
191.2
324.6
361.3
101.6
61.4
268.3
348.4
105.0
56.2
1,379.5
1,108.0
245.8
131.4
1,369.0
1,113.0
257.9
135.0
Regulatory Costs in Other Long-Term Assets: The Regulated companies had $76.1 million (including $2.8 million for CL&P, $33 million for NSTAR Electric, $5.4 million for PSNH and $18 million for WMECO) and $75.3 million (including $3.1 million for CL&P, $35.4 million for NSTAR Electric, $4.8 million for PSNH, and $16.7 million for WMECO) of additional regulatory costs as of March 31, 2016 and December 31, 2015, respectively, that were included in Other Long-Term Assets on the balance sheets. These amounts represent incurred costs for which recovery has not yet been specifically approved by the applicable regulatory agency. However, based on regulatory policies or past precedent on similar costs, management believes it is probable that these costs will ultimately be approved and recovered from customers in rates.
Regulatory Liabilities: The components of regulatory liabilities were as follows:
Cost of Removal
444.7
437.1
101.1
99.7
AFUDC – Transmission
65.9
66.1
Other Regulatory Liabilities
26.2
18.5
Total Regulatory Liabilities
637.9
621.4
111.4
107.8
Total Long-Term Regulatory Liabilities
513.6
26.7
260.2
47.3
3.7
24.1
257.4
47.2
2.8
49.7
4.5
2.6
10.9
3.3
3.4
12.9
51.2
5.8
8.9
5.7
13.1
1.9
2.7
0.1
4.2
140.7
272.4
23.6
136.0
267.7
54.8
24.7
63.0
5.0
4.7
9.8
61.2
6.9
77.7
267.4
47.9
13.8
74.8
264.4
11.6
19
3.
PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION
The following tables summarize the investments in utility property, plant and equipment by asset category:
Distribution – Electric
13,227.4
13,054.8
Distribution - Natural Gas
2,759.1
2,727.2
Transmission – Electric
7,725.3
7,691.9
Generation
1,210.3
1,194.1
Electric and Natural Gas Utility
24,922.1
24,668.0
Other (1)
575.5
558.6
Property, Plant and Equipment, Gross
25,497.6
25,226.6
Less: Accumulated Depreciation
(6,249.0)
(6,141.1)
(264.8)
(255.6)
Total Accumulated Depreciation
(6,513.8)
(6,396.7)
18,983.8
18,829.9
1,112.9
1,062.5
Total Property, Plant and Equipment, Net
20,096.7
19,892.4
(1)
These assets are primarily comprised of building improvements, computer software, hardware and equipment at Eversource Service.
Distribution
5,429.5
5,176.1
1,839.5
822.2
5,377.2
5,100.5
1,804.8
812.3
Transmission
3,631.3
2,137.7
936.1
971.0
3,618.0
2,131.3
928.2
964.9
1,174.3
1,158.1
9,060.8
7,313.8
3,949.9
1,829.2
8,995.2
7,231.8
3,891.1
1,813.2
(2,073.7)
(1,924.4)
(1,192.0)
(317.0)
(2,041.9)
(1,886.8)
(1,171.0)
(307.0)
6,987.1
5,389.4
2,757.9
1,512.2
6,953.3
5,345.0
2,720.1
1,506.2
244.1
310.7
123.5
78.3
203.5
310.5
135.3
69.1
7,231.2
5,700.1
2,881.4
1,590.5
7,156.8
5,655.5
2,855.4
1,575.3
As of March 31, 2016, PSNH had $1.2 billion in gross generation utility plant assets and related Accumulated Depreciation of $531.7 million. These generation assets are the subject of a divestiture agreement entered into on June 10, 2015 between Eversource, PSNH and key New Hampshire officials whereby PSNH agreed to divest these generation assets upon NHPUC approval. Upon completion of the divestiture process, all remaining costs not recovered by the sale of these assets (stranded costs) will be recovered via bonds that will be secured by a non-bypassable charge or other recovery mechanisms in rates billed to PSNH's customers. See Note 8E, "Commitments and Contingencies – PSNH Generation Restructuring," for further information.
4.
DERIVATIVE INSTRUMENTS
The Regulated companies purchase and procure energy and energy-related products, which are subject to price volatility, for their customers. The costs associated with supplying energy to customers are recoverable from customers in future rates. The Regulated companies manage the risks associated with the price volatility of energy and energy-related products through the use of derivative and nonderivative contracts.
Many of the derivative contracts meet the definition of, and are designated as, normal and qualify for accrual accounting under the applicable accounting guidance. The costs and benefits of derivative contracts that meet the definition of normal are recognized in Operating Expenses or Operating Revenues on the statements of income, as applicable, as electricity or natural gas is delivered.
Derivative contracts that are not designated as normal are recorded at fair value as current or long-term Derivative Assets or Derivative Liabilities on the balance sheets. For the Regulated companies, regulatory assets or regulatory liabilities are recorded to offset the fair values of derivatives, as contract settlement amounts are recovered from, or refunded to, customers in their respective energy supply rates.
20
The gross fair values of derivative assets and liabilities with the same counterparty are offset and reported as net Derivative Assets or Derivative Liabilities, with current and long-term portions, on the balance sheets. The following table presents the gross fair values of contracts, categorized by risk type, and the net amounts recorded as current or long-term derivative assets or liabilities:
Commodity Supply
Net Amount
and Price Risk
Recorded as
Management
Netting (1)
a Derivative
Current Derivative Assets:
Level 3:
17.2
(11.0)
6.2
16.7
(10.9)
0.5
Long-Term Derivative Assets:
Level 2:
62.6
(16.9)
45.7
62.0
(19.3)
42.7
61.8
44.9
60.7
41.4
0.8
Current Derivative Liabilities:
(0.9)
0.2
(0.7)
(5.8)
(95.1)
(92.3)
(93.0)
(91.8)
(2.1)
(0.5)
Long-Term Derivative Liabilities:
(344.5)
(337.1)
(342.7)
(336.2)
(1.8)
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, 2016 and December 31, 2015, Eversource had NYMEX financial contracts for natural gas futures in order to reduce variability associated with the purchase price of approximately 5.3 million and 9.1 million MMBtu of natural gas, respectively.
For the three months ended March 31, 2016 and 2015, there were losses of $30.5 million and $16.6 million, respectively, deferred as regulatory costs, which reflect the change in fair value associated with Eversource's derivative contracts.
Credit Risk
Certain of Eversource's derivative contracts contain credit risk contingent provisions. These provisions require Eversource to maintain investment grade credit ratings from the major rating agencies and to post collateral for contracts in a net liability position over specified credit limits. As of March 31, 2016 and December 31, 2015, Eversource had $0.7 million and $5.8 million, respectively, of derivative contracts in a net liability position that were subject to credit risk contingent provisions and would have been required to post additional collateral of $0.9 million and $5.8 million, respectively, if certain of Eversource's unsecured debt credit ratings had been downgraded to below investment grade.
21
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 time period of the contract.
Valuations of derivative contracts using a discounted cash flow methodology include assumptions regarding the timing and likelihood of scheduled payments and also reflect non-performance risk, including credit, using the default probability approach based on the counterparty's credit rating for assets and the Company's credit rating for liabilities. Valuations incorporate estimates of premiums or discounts that would be required by a market participant to arrive at an exit price, using historical market transactions adjusted for the terms of the contract.
The following is a summary of Eversource's, including CL&P's and NSTAR Electric's, Level 3 derivative contracts and the range of the significant unobservable inputs utilized in the valuations over the duration of the contracts:
Range
Period Covered
Capacity Prices:
11.08
15.82
per kW-Month
2017 - 2026
10.81
2016 - 2026
12.60
2020 - 2026
2019 - 2026
12.11
2017 - 2018
2016 - 2019
Forward Reserve:
Eversource, CL&P
2.00
2016 - 2024
REC Prices:
Eversource, NSTAR Electric
30
35
per REC
2016 - 2018
45
Exit price premiums of 5 percent through 22 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.
Derivatives, Net:
Fair Value as of Beginning of Period
(380.9)
(380.8)
(0.1)
(415.4)
(410.9)
(4.5)
Net Realized/Unrealized Gains/(Losses) Included in Regulatory Assets and Liabilities
(28.9)
(24.6)
(4.3)
(12.1)
Settlements
22.1
20.3
1.8
20.7
19.7
1.0
Fair Value as of End of Period
(387.7)
(385.1)
(2.6)
(406.8)
(403.3)
(3.5)
5.
MARKETABLE SECURITIES
Eversource maintains trusts that hold marketable securities to fund certain non-qualified executive benefits. These trusts are not subject to regulatory oversight by state or federal agencies. CYAPC and YAEC maintain legally restricted trusts, each of which holds marketable securities, to fund the decommissioning and spent nuclear fuel removal obligations of their nuclear fuel storage facilities.
Trading Securities: Eversource has elected to record certain equity securities as trading securities, with the changes in fair values recorded in Other Income, Net on the statements of income. As of March 31, 2016 and December 31, 2015, these securities were classified as Level 1 in the fair value hierarchy and totaled $14.0 million and $14.2 million, respectively. For the three months ended March 31, 2016 and 2015, net gains on these securities of $0.2 million and $1.6 million, respectively, were recorded in Other Income, Net on the statements of income. Dividend income is recorded in Other Income, Net when dividends are declared.
22
Available-for-Sale Securities: The following is a summary of available-for-sale securities, which are recorded at fair value and are included in current and long-term Marketable Securities on the balance sheets.
Pre-Tax
Amortized
Unrealized
Cost
Gains
Losses
Fair Value
Debt Securities
7.0
264.8
256.5
(0.6)
260.4
Equity Securities
214.7
42.0
253.2
215.3
59.2
(3.4)
271.1
Eversource's debt and equity securities include CYAPC's and YAEC's marketable securities held in nuclear decommissioning trusts of $424.2 million and $436.9 million as of March 31, 2016 and December 31, 2015, respectively. Unrealized gains and losses for these nuclear decommissioning trusts are recorded in Marketable Securities with the corresponding offset to Other Long-Term Liabilities on the balance sheets, with no impact on the statements of income.
Unrealized Losses and Other-than-Temporary Impairment: There have been no significant unrealized losses, other-than-temporary impairments or credit losses for the three months ended March 31, 2016 and 2015. Factors considered in determining whether a credit loss exists include the duration and severity of the impairment, adverse conditions specifically affecting the issuer, and the payment history, ratings and rating changes of the security. For asset-backed debt securities, underlying collateral and expected future cash flows are also evaluated.
Realized Gains and Losses: Realized gains and losses on available-for-sale securities are recorded in Other Income, Net for Eversource's benefit trust and are offset in Other Long-Term Liabilities for CYAPC and YAEC. Eversource utilizes the specific identification basis method for the Eversource benefit trust, and the average cost basis method for the CYAPC and YAEC nuclear decommissioning trusts to compute the realized gains and losses on the sale of available-for-sale securities.
Contractual Maturities: As of March 31 2016, the contractual maturities of available-for-sale debt securities were as follows:
Less than one year (1)
38.2
One to five years
52.1
Six to ten years
44.4
Greater than ten years
125.5
130.1
Total Debt Securities
Amounts in the Less than one year category include securities in the CYAPC and YAEC nuclear decommissioning trusts, which are restricted and are classified in long-term Marketable Securities on the balance sheets.
Fair Value Measurements: The following table presents the marketable securities recorded at fair value on a recurring basis by the level in which they are classified within the fair value hierarchy:
Level 1:
Mutual Funds and Equities
267.2
285.3
Money Market Funds
32.1
26.9
Total Level 1
299.3
312.2
U.S. Government Issued Debt Securities (Agency and Treasury)
59.4
46.6
Corporate Debt Securities
37.0
43.9
Asset-Backed Debt Securities
19.6
20.0
Municipal Bonds
108.0
Other Fixed Income Securities
Total Level 2
232.7
233.5
Total Marketable Securities
532.0
545.7
U.S. government issued debt securities are valued using market approaches that incorporate transactions for the same or similar bonds and adjustments for yields and maturity dates. Corporate debt securities are valued using a market approach, utilizing recent trades of the same or similar instrument and also incorporating yield curves, credit spreads and specific bond terms and conditions. Asset-backed debt securities include collateralized mortgage obligations, commercial mortgage backed securities, and securities collateralized by auto loans, credit card loans or receivables. Asset-backed debt securities are valued using recent trades of similar instruments, prepayment assumptions, yield curves, issuance and maturity dates, and tranche information. Municipal bonds are valued using a market approach that incorporates reported trades and benchmark yields. Other fixed income securities are valued using pricing models, quoted prices of securities with similar characteristics, and discounted cash flows.
23
6.
SHORT-TERM AND LONG-TERM DEBT
Commercial Paper Programs and Credit Agreements: Eversource parent has a $1.45 billion commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt. As of March 31, 2016 and December 31, 2015, Eversource parent had $621 million and approximately $1.1 billion, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving $829 million and $351.5 million of available borrowing capacity as of March 31, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of March 31, 2016 and December 31, 2015 was 0.68 percent and 0.72 percent, respectively. As of March 31, 2016, there were intercompany loans from Eversource parent of $115.5 million to CL&P, $157.1 million to PSNH and $143.5 million to WMECO. As of December 31, 2015, there were intercompany loans from Eversource parent of $277.4 million to CL&P, $231.3 million to PSNH and $143.4 million to WMECO. Eversource parent, CL&P, PSNH, WMECO, NSTAR Gas and Yankee Gas are parties to a five-year $1.45 billion revolving credit facility, which terminates on September 4, 2020. The revolving credit facility serves to backstop Eversource parent's $1.45 billion commercial paper program.
NSTAR Electric has a $450 million commercial paper program allowing NSTAR Electric to issue commercial paper as a form of short-term debt. As of March 31, 2016 and December 31, 2015, NSTAR Electric had $148.5 million and $62.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $301.5 million and $387.5 million of available borrowing capacity as of March 31, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of March 31, 2016 and December 31, 2015 was 0.38 percent and 0.40 percent, respectively. NSTAR Electric is a party to a five-year $450 million revolving credit facility, which terminates on September 4, 2020. The revolving credit facility serves to backstop NSTAR Electric's $450 million commercial paper program.
Except as described below, 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: In March 2016, Eversource parent issued $250 million of 2.50 percent Series I Senior Notes due to mature in 2021 and $250 million of 3.35 percent Series J Senior Notes due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program.
7.
PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Eversource Service sponsors a defined benefit retirement plan (Pension Plan) that covers eligible employees, including, among others, employees of CL&P, NSTAR Electric, PSNH and WMECO. In addition to the Pension Plan, Eversource maintains non-qualified defined benefit retirement plans sponsored by Eversource Service (SERP Plans), which provide benefits in excess of Internal Revenue Code limitations to eligible participants consisting of current and retired employees. Eversource Service also sponsors defined benefit postretirement plans that provide certain benefits, primarily medical, dental and life insurance, to retired employees that met certain age and service eligibility requirements, including, among others, employees of CL&P, NSTAR Electric, PSNH and WMECO (PBOP Plan).
Effective January 1, 2016, the Company refined its method of estimating the discount rate for the service and interest cost components of Pension and PBOP expense from the yield-curve approach to the spot rate methodology, which provides a more precise measurement by matching projected cash flows to the corresponding spot rates on the yield curve. Historically, these components were estimated using the same weighted-average discount rate as for the funded status. The discount rates used to estimate the 2016 service cost were 4.89 percent and 5.14 percent for the Pension and PBOP plans, respectively. The discount rates used to estimate the 2016 interest cost were 3.80 percent and 3.72 percent for the Pension and PBOP plans, respectively. The total pre-tax benefit of this change on Pension and PBOP expense, prior to the capitalized portion and amounts deferred and recovered through rate reconciliation mechanisms, for the three months ended March 31, 2016 was approximately $12 million and $2.5 million for the Pension and PBOP plans, respectively.
The components of net periodic benefit expense for the Pension, SERP and PBOP Plans are shown below. The net periodic benefit expense and the intercompany allocations less the capitalized portion of pension, SERP and PBOP amounts are included in Operations and Maintenance expense on the statements of income. Capitalized pension and PBOP amounts relate to employees working on capital projects and are included in Property, Plant and Equipment, Net on the balance sheets. Pension, SERP and PBOP expense reflected in the statements of cash flows for CL&P, NSTAR 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
March 31, 2015(1)
Service Cost
19.4
23.2
Interest Cost
46.5
56.6
Expected Return on Plan Assets
(79.6)
(84.3)
Actuarial Loss
38.9
Prior Service Cost
0.9
Total Net Periodic Benefit Expense
18.7
35.3
Capitalized Pension Expense
6.1
9.6
24
3.1
9.7
11.9
(15.7)
(16.8)
1.1
Prior Service Credit
Total Net Periodic Benefit Expense/(Income)
(1.9)
Capitalized PBOP Expense/(Income)
For the Three Months Ended March 31, 2016
For the Three Months Ended March 31, 2015
PSNH (1)
2.5
6.0
3.8
2.9
10.6
5.1
2.1
12.7
10.2
5.9
(18.2)
(9.7)
(4.4)
(19.7)
(17.6)
(10.0)
(4.7)
6.7
8.4
1.4
8.2
3.0
1.6
0.4
3.2
7.6
0.6
Intercompany Allocations
2.2
6.4
3.6
1.7
1.2
0.3
4.3
4.0
4.8
(6.4)
(1.4)
(2.8)
(6.8)
(1.5)
Total Net Periodic Benefit Income
(1.3)
(0.2)
Amounts excluded approximately $1 million for the three months ended March 31, 2015 that represented amounts included in other deferred debits.
8.
COMMITMENTS AND CONTINGENCIES
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:
Reserve
Number of Sites
(in millions)
51.7
51.1
4.6
2.3
2.4
4.4
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 $46.1 million and $45.5 million as of March 31, 2016 and December 31, 2015, respectively, and related primarily to the natural gas business segment.
These reserve estimates are subjective in nature as they take into consideration several different remediation options at each specific site. The reliability and precision of these estimates can be affected by several factors, including new information concerning either the level of contamination at the site, the extent of Eversource's, CL&P's, NSTAR Electric's, PSNH's, and WMECO's responsibility for remediation or the extent of remediation required, recently enacted laws and regulations or changes in cost estimates due to certain economic factors. It is possible that new information or future developments could require a reassessment of the potential exposure to related environmental matters. As this information becomes available, management will continue to assess the potential exposure and adjust the reserves accordingly.
25
Guarantees and Indemnifications
In the normal course of business, Eversource parent provides credit assurances on behalf of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, in the form of guarantees.
Eversource parent issued a declining balance guaranty on behalf of a wholly-owned subsidiary to guarantee the payment of the subsidiary's capital contributions for its investment in the Access Northeast project. The guarantee 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 guaranteed certain indemnification and other obligations as a result of the sales of former unregulated subsidiaries and the termination of an unregulated business, with maximum exposures either not specified or not material.
Management does not anticipate a material impact to Net Income as a result of these various guarantees and indemnifications.
The following table summarizes Eversource parent's exposure to guarantees and indemnifications of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, and guarantees to external parties, as of March 31, 2016:
Maximum Exposure
Company
Description
Expiration Dates
On behalf of subsidiaries:
Eversource Gas Transmission LLC
Access Northeast Project Capital Contributions Guarantee
187.9
2021
Various
Surety Bonds (1)
38.7
Eversource Service and Rocky River Realty Company
Lease Payments for Vehicles and Real Estate
10.3
2019 and 2024
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 are downgraded.
Spent Nuclear Fuel Litigation - Yankee Companies
The Yankee Companies have filed separate complaints against the DOE in the Court of Federal Claims seeking monetary damages resulting from the DOE's failure to provide for a permanent facility to store spent nuclear fuel pursuant to the terms of the 1983 spent fuel and high level waste disposal contracts between the Yankee Companies and the DOE. The court had previously awarded the Yankee Companies damages for Phase I and Phase II of litigation resulting from the DOE's failure to meet its contractual obligations. Phase I covered damages incurred in the years 1998 through 2002 and Phase II covered damages incurred in the years 2001 through 2008 for CYAPC and YAEC and from 2002 through 2008 for MYAPC.
DOE Phase III Damages - In August 2013, the Yankee Companies each filed subsequent lawsuits against the DOE seeking recovery of actual damages incurred in the years 2009 through 2012. The DOE Phase III trial concluded on July 1, 2015, followed by a post-trial briefing that concluded on October 14, 2015. On March 25, 2016, the court issued its decision, awarding CYAPC, YAEC and MYAPC damages of $32.6 million, $19.6 million and $24.6 million, respectively. In total, the Yankee Companies were awarded $76.8 million of the $77.9 million in damages sought by the Yankee Companies in Phase III. Any amounts refunded to Eversource utilities, which include CL&P, NSTAR Electric, PSNH and WMECO, will ultimately be refunded to utility customers. The parties have 60 days following the final judgment date to appeal. At this time, management cannot predict the timing or amount of damages that will ultimately be awarded.
FERC ROE Complaints
FERC ROE Complaints I, II and III: Three separate complaints have been filed at FERC by combinations of New England state attorneys general, state regulatory commissions, consumer advocates, consumer groups, municipal parties and other parties (the "Complainants"). In these three separate complaints, the Complainants challenged the NETOs' base ROE of 11.14 percent that had been utilized since 2006 and sought an order to reduce it prospectively from the date of the final FERC order and for the 15-month complaint refund periods stipulated in the separate complaints. In 2014, the FERC ordered a 10.57 percent base ROE for the first complaint refund period and prospectively from October 16, 2014, and that a utility's total or maximum ROE shall not exceed the top of the new zone of reasonableness, which was set at 11.74 percent. In late 2014, the NETOs made a compliance filing, and the Company began issuing refunds to customers from the first complaint period. The Company has refunded all amounts associated with the first complaint period.
As a result of developments in this matter, the Company recorded reserves across the complaint periods at its electric subsidiaries in the first quarter of 2015 and recognized a pre-tax charge to earnings (excluding interest) of $20 million, of which $12.5 million was recorded at CL&P, $2.4 million at NSTAR Electric, $1 million at PSNH, and $4.1 million at WMECO. The pre-tax charge was recorded as a regulatory liability and as a reduction to Operating Revenues. The NETOs and Complainants have filed appeals for the first complaint to the D.C. Circuit Court of Appeals. A court decision is expected in late 2016.
26
For the second and third complaints, the state parties, municipal utilities and FERC trial staff each believe that the base ROE should be reduced to an amount lower than 10.57 percent. The NETOs believe that the Complainants' positions are without merit. On March 22, 2016, the FERC ALJ issued an initial decision on the second and third FERC ROE complaints. For the second complaint period, the FERC ALJ recommended a zone of reasonableness of 7.12 percent to 10.42 percent and a base ROE of 9.59 percent. For the third complaint period, the FERC ALJ recommended a zone of reasonableness of 7.04 percent to 12.19 percent and a base ROE of 10.90 percent. The FERC ALJ also affirmed that the maximum ROE for transmission incentive projects should be the top of the zone of reasonableness. The NETOs filed briefs on April 21, 2016, in which the NETOs identified corrections and requested changes that should be made to the FERC ALJ’s recommendations. A final FERC order is expected in late 2016 or early 2017.
The Company believes that the range of potential loss for the second complaint period (the 15-month period beginning December 27, 2012) is from a base ROE of 10.57 percent to a base ROE of 9.59 percent. As the FERC ALJ initial decision on the third complaint recommended a base ROE of 10.90 percent, the Company concluded there is currently no range of potential loss for that complaint period. Given the differences between the recommended base ROEs in the FERC ALJ’s initial decision on the second and third complaints, as well as other factors, the Company is unable to predict the outcome of the final FERC order on these complaints. The Company does not believe any base ROE outcome within the 10.57 percent to 9.59 percent range is more likely than the base ROEs used to record the current revenues and reserves, and therefore the Company believes that the current reserves for the second complaint period are appropriate at this time.
The impact of a 10 basis point change to the existing base ROE of 10.57 percent would affect Eversource's after-tax earnings by approximately $3 million for each of the 15-month second and third complaint periods. If the Company adjusted its reserves based on the recommendations in the FERC ALJ initial decision (for both the base ROE and maximum ROE for transmission incentive projects) for the second and third complaints, then it would result in an after-tax increase of approximately $34 million and an after-tax decrease of approximately $8 million, respectively, to the existing reserves.
FERC ROE Complaint IV: On April 29, 2016, a fourth complaint was filed with the FERC. At this time, the Company is unable to predict the outcome of this complaint.
PSNH Generation Restructuring
On June 10, 2015, Eversource and PSNH entered into the 2015 Public Service Company of New Hampshire Restructuring and Rate Stabilization Agreement (the Agreement) with the New Hampshire Office of Energy and Planning, certain members of the NHPUC staff, the Office of Consumer Advocate, two State Senators, and several other parties. The Agreement was filed with the NHPUC on the same day. Under the terms of the Agreement, PSNH agreed to divest its generation assets upon NHPUC approval. The Agreement is designed to provide a resolution of issues pertaining to PSNH's generation assets in pending regulatory proceedings before the NHPUC. The Agreement provided for the Clean Air Project prudence proceeding to be resolved and all remaining Clean Air Project costs to be included in rates effective January 1, 2016. As part of the Agreement, PSNH agreed to forego recovery of $25 million of the deferred equity return related to the Clean Air Project. In addition, PSNH will not seek a general distribution rate increase effective before July 1, 2017 and will contribute $5 million to create a clean energy fund, which will not be recoverable from its customers. In 2015, PSNH recorded the $5 million contribution as a long-term liability and an increase to Operations and Maintenance expense on the statements of income.
Upon completion of the divestiture process, all remaining stranded costs will be recovered via bonds that will be secured by a non-bypassable charge or through other recoveries in rates billed to PSNH customers.
On January 26, 2016, Advisory Staff of the NHPUC and the parties to the Agreement filed a stipulation with the NHPUC agreeing that near-term divestiture of PSNH’s generation was in the public interest and that the Agreement should be approved. Implementation of the Agreement is subject to NHPUC approval, which is expected in 2016.
If the NHPUC approves the settlements and the sale of the plants, the Company expects the plants will be sold in the first half of 2017. The sales price of the generating assets could be less than the carrying value, but the Company believes that full recovery of PSNH's generation assets is probable through a combination of cash flows during the remaining operating period, sales proceeds upon divestiture, and recovery of stranded costs in future rates.
9.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Preferred Stock and Long-Term Debt: The fair value of CL&P's and NSTAR Electric's preferred stock is based upon pricing models that incorporate interest rates and other market factors, valuations or trades of similar securities and cash flow projections. The fair value of long-term debt securities is based upon pricing models that incorporate quoted market prices for those issues or similar issues adjusted for market conditions, credit ratings of the respective companies and treasury benchmark yields. The fair values provided in the tables below are classified as Level 2 within the fair value hierarchy. Carrying amounts and estimated fair values are as follows:
Carrying
Fair
Amount
Value
155.6
155.8
157.9
9,523.6
10,190.4
9,034.5
9,425.9
27
116.2
113.7
43.0
42.1
2,764.3
3,155.9
2,030.0
2,240.7
1,071.3
1,139.5
517.2
556.8
114.9
2,763.7
3,031.6
2,029.8
2,182.4
1,071.0
1,121.2
517.3
551.8
Derivative Instruments: Derivative instruments are carried at fair value. For further information, see Note 4, "Derivative Instruments," to the financial statements.
Marketable Securities: Investments in marketable securities are carried at fair value. For further information, see Note 5, "Marketable Securities," to the financial statements.
See Note 1D, "Summary of Significant Accounting Policies - Fair Value Measurements," for the fair value measurement policy and the fair value hierarchy.
10.
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The changes in accumulated other comprehensive income/(loss) by component, net of tax, is as follows:
Qualified
Cash Flow
Gains/(Losses)
Defined
Gains on
Hedging
on Marketable
Benefit
Marketable
Instruments
Securities
Plans
Total
Balance as of Beginning of Period
(10.3)
(54.6)
(66.8)
(12.4)
0.7
(62.3)
(74.0)
OCI Before Reclassifications
Amounts Reclassified from AOCI
1.5
Net OCI
Balance as of End of Period
(9.8)
(1.7)
(53.7)
(65.2)
(11.9)
(61.3)
(72.4)
Eversource's qualified cash flow hedging instruments represent interest rate swap agreements on debt issuances that were settled in prior years. The settlement amount was recorded in AOCI and is being amortized into Net Income over the term of the underlying debt instrument. CL&P, PSNH and WMECO continue to amortize interest rate swaps settled in prior years from AOCI into Interest Expense over the remaining life of the associated long-term debt. Such interest rate swaps are not material to their respective financial statements.
The amortization expense of actuarial gains and losses on the defined benefit plans is amortized from AOCI into Operations and Maintenance expense over the average future employee service period, and is reflected in amounts reclassified from AOCI.
11.
COMMON SHARES
The following table sets forth the Eversource parent common shares and the shares of common stock of CL&P, NSTAR Electric, PSNH and WMECO that were authorized and issued as well as the respective per share par values:
Shares
Authorized as of
Per Share
March 31, 2016 and
Issued as of
Par Value
December 31, 2015
380,000,000
333,878,402
333,862,615
24,500,000
6,035,205
100,000,000
301
1,072,471
434,653
As of both March 31, 2016 and December 31, 2015, there were 16,671,366 Eversource common shares held as treasury shares. As of March 31, 2016 and December 31, 2015, Eversource common shares outstanding were 317,207,036 and 317,191,249, respectively.
28
12.
COMMON SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS
Dividends on the preferred stock of CL&P and NSTAR Electric totaled $1.9 million for the three months ended March 31, 2016 and 2015. These dividends were presented as Net Income Attributable to Noncontrolling Interests on the Eversource statements of income. Noncontrolling Interest – Preferred Stock of Subsidiaries on the Eversource balance sheets totaled $155.6 million as of March 31, 2016 and December 31, 2015. Common Shareholders' Equity was fully attributable to the parent and Noncontrolling Interest – Preferred Stock of Subsidiaries was fully attributable to the noncontrolling interest on the Eversource balance sheets.
13.
EARNINGS PER SHARE
Basic EPS is computed based upon the weighted average number of common shares outstanding during each period. Diluted EPS is computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect of certain share-based compensation awards as if they were converted into common shares. The dilutive effect of unvested RSU and performance share awards and unexercised stock options is calculated using the treasury stock method. RSU and performance share awards are included in basic weighted average common shares outstanding as of the date that all necessary vesting conditions have been satisfied. For the three months ended March 31, 2016 and 2015, there were no antidilutive share awards excluded from the computation.
The following table sets forth the components of basic and diluted EPS:
(Millions of Dollars, except share information)
244.2
253.3
Dilutive Effect
963,909
1,400,347
Basic and Diluted EPS
14.
SEGMENT INFORMATION
Presentation: Eversource is organized into the Electric Distribution, Electric Transmission and Natural Gas Distribution reportable segments and Other based on a combination of factors, including the characteristics of each segments' products and services, the sources of operating revenues and expenses and the regulatory environment in which each segment operates. These reportable segments represent substantially all of Eversource's total consolidated revenues. Revenues from the sale of electricity and natural gas primarily are derived from residential, commercial and industrial customers and are not dependent on any single customer. The Electric Distribution reportable segment includes the generation activities of PSNH and WMECO.
The remainder of Eversource's operations is presented as Other in the tables below and primarily consists of 1) the equity in earnings of Eversource parent from its subsidiaries and intercompany interest income, both of which are eliminated in consolidation, and interest expense related to the debt of Eversource parent, 2) the revenues and expenses of Eversource Service, most of which are eliminated in consolidation, 3) the operations of CYAPC and YAEC, 4) the results of Eversource Gas Transmission LLC and 5) the results of other unregulated subsidiaries, which are not part of its core business.
Cash flows used for investments in plant included in the segment information below are cash capital expenditures that do not include amounts incurred but not paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense.
Eversource's reportable segments are determined based upon the level at which Eversource's chief operating decision maker assesses performance and makes decisions about the allocation of company resources. Each of Eversource's subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, has one reportable segment. Eversource's operating segments and reporting units are consistent with its reportable business segments.
Eversource's segment information is as follows:
Natural Gas
Eliminations
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)
(195.0)
Other Operating Expenses
(1,088.9)
(233.5)
(73.0)
(197.3)
220.6
(1,372.1)
219.5
93.3
165.2
10.0
488.5
(48.0)
(10.1)
(28.0)
(14.1)
2.0
(98.2)
Other Income/(Loss), Net
(0.3)
305.5
(305.8)
108.4
50.9
302.5
(303.3)
Cash Flows Used for Investments in Plant
184.2
172.4
22.8
431.5
29
1,760.1
507.4
249.0
240.0
(243.1)
2,513.4
(159.1)
(40.4)
(7.2)
(224.4)
(1,342.8)
(388.5)
(74.1)
(229.2)
243.1
(1,791.5)
258.2
100.7
134.5
497.5
(47.6)
(9.0)
(27.6)
(11.8)
(94.8)
314.9
(314.1)
130.6
55.6
66.6
312.9
(312.4)
172.5
30.0
150.0
10.1
362.6
The following table summarizes Eversource's segmented total assets:
17,999.8
3,134.1
8,127.2
13,335.6
(11,884.2)
30,712.5
17,981.3
3,104.5
8,019.3
13,256.7
(11,781.5)
30,580.3
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 2015 combined Annual Report on Form 10-K. References in this Form 10-Q to "Eversource," the "Company," "we," "us," and "our" refer to Eversource Energy and its consolidated subsidiaries. All per share amounts are reported on a diluted basis. The unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH and the unaudited condensed financial statements of CL&P and WMECO are herein collectively referred to as the "financial statements."
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.
The only common equity securities that are publicly traded are common shares of Eversource. The earnings and EPS of each business discussed below do not represent a direct legal interest in the assets and liabilities of such business but rather represent a direct interest in our assets and liabilities as a whole. EPS by business is a financial measure not recognized under GAAP that is calculated by dividing the Net Income Attributable to Common Shareholders of each business by the weighted average diluted Eversource common shares outstanding for the period. The tabular presentations below also include non-GAAP financial measures referencing our first quarter 2015 earnings and EPS excluding certain integration costs incurred by Eversource parent. We use these non-GAAP financial measures to evaluate and to provide details of earnings by business and to more fully compare and explain our first quarter 2015 results without including the impact of these items. Due to the nature and significance of these items on Net Income Attributable to Common Shareholders, we believe that the non-GAAP presentation is more representative of our financial performance and provides additional and useful information to readers of this report in analyzing historical and future performance by business. These non-GAAP financial measures should not be considered as an alternative to reported Net Income Attributable to Common Shareholders or EPS determined in accordance with GAAP as an indicator of operating performance.
Reconciliations of the above non-GAAP financial measures to the most directly comparable GAAP measures of consolidated diluted EPS and Net Income Attributable to Common Shareholders are included under "Financial Condition and Business Analysis – Overview – Consolidated" and "Financial Condition and Business Analysis – Overview – Regulated Companies" in this Management's Discussion and Analysis of Financial Condition and Results of Operations, herein.
From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify our forward-looking statements through the use of words or phrases such as "estimate," "expect," "anticipate," "intend," "plan," "project," "believe," "forecast," "should," "could," and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to:
·
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, contain uncertainties that may materially affect our actual results and are beyond our control. You should not place undue reliance on the forward-looking statements, each speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for us to predict all of such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For more information, see Item 1A, Risk Factors, included in this combined Quarterly Report on Form 10-Q and in Eversource’s 2015 combined Annual Report on Form 10-K. This combined Quarterly Report on Form 10-Q and Eversource’s 2015 combined Annual Report on Form 10-K also describe material contingencies and critical accounting policies in the accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations and Combined Notes to Consolidated Financial Statements. We encourage you to review these items.
Financial Condition and Business Analysis
Executive Summary
The following items in this executive summary are explained in more detail in this combined Quarterly Report on Form 10-Q:
Results:
We earned $244.2 million, or $0.77 per share in the first quarter of 2016, compared with $253.3 million, or $0.80 per share in the first quarter of 2015.
Our electric distribution segment, which includes generation, earned $108.4 million, or $0.34 per share in the first quarter of 2016, compared with $130.6 million, or $0.41 per share in the first quarter of 2015. Our electric transmission segment earned $85.7 million, or $0.27 per share in the first quarter of 2016, compared with $66.6 million, or $0.21 per share in the first quarter of 2015. Our natural gas distribution segment earned $50.9 million, or $0.16 per share in the first quarter of 2016, compared with $55.6 million, or $0.18 per share in the first quarter of 2015.
Liquidity:
Cash flows provided by operating activities totaled $500 million in the first quarter of 2016, compared with $491.5 million in the first quarter of 2015. Investments in property, plant and equipment totaled $431.5 million in the first quarter of 2016, compared with $362.6 million in the first quarter of 2015. Cash and cash equivalents totaled $51 million as of March 31, 2016, compared with $23.9 million as of December 31, 2015.
In March 2016, Eversource parent issued $250 million of 2.50 percent Series I Senior Notes, due to mature in 2021, and $250 million of 3.35 percent Series J Senior Notes, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowingsunder the Eversource parent commercial paper program.
On May 4, 2016, our Board of Trustees approved a common share dividend payment of $0.445 per share, payable on June 30, 2016 to shareholders of record as of May 31, 2016.
Strategic, Legislative, Regulatory, Policy and Other Items:
On March 22, 2016, the FERC ALJ issued an initial decision on the second and third FERC ROE complaints. The FERC ALJ recommended a base ROE of 9.59 percent and a zone of reasonableness of 7.12 percent to 10.42 percent and a base ROE of 10.90 percent and a zone of reasonableness of 7.04 percent to 12.19 percent for the second and third complaints, respectively. The FERC ALJ also affirmed that the maximum ROE for transmission incentive projects should be 10.42 percent for the second complaint and 12.19 percent for the third complaint. A final FERC order is expected in late 2016 or early 2017. We did not adjust our ROEs or reserves and believe that the current ROEs and reserves are appropriate at this time.
On April 29, 2016, a fourth complaint was filed with the FERC. At this time, we are unable to predict the outcome of this complaint.
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 quarters of 2016 and 2015. Also included in the summary for the first quarter of 2015 is a reconciliation of the non-GAAP financial measure of consolidated non-GAAP earnings to the most directly comparable GAAP measure of consolidated Net Income Attributable to Common Shareholders.
(Millions of Dollars, Except Per Share Amounts)
Net Income Attributable to Common Shareholders (GAAP)
Regulated Companies
245.0
252.8
Eversource Parent and Other Companies
(0.8)
0.01
Non-GAAP Earnings
N/A
257.3
0.81
Integration Costs (after-tax) (1)
(4.0)
(0.01)
The first quarter 2015 integration costs were associated with our branding efforts and severance costs.
32
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 quarters of 2016 and 2015 is as follows:
Electric Distribution
0.34
0.41
Electric Transmission
0.27
0.21
Natural Gas Distribution
0.16
0.18
Net Income - Regulated Companies
Our electric distribution segment earnings decreased $22.2 million in the first quarter of 2016, as compared to the first quarter of 2015, due primarily to the absence in 2016 of the resolution of NSTAR Electric's basic service bad debt adder mechanism ($14.5 million), the absence in 2016 of the favorable impact associated with the NSTAR Electric and NSTAR Gas Comprehensive Settlement Agreement ($13 million), lower retail sales volumes at NSTAR Electric and PSNH as a result of the warmer than normal weather in the first quarter of 2016, as compared to the much colder than normal temperatures in the first quarter of 2015, higher depreciation expense and higher property tax expense. These unfavorable earnings impacts were partially offset by a decrease in operations and maintenance costs primarily attributable to lower employee-related expenses and increased CL&P distribution revenues primarily as a result of increases to rate base.
Our electric transmission segment earnings increased $19.1 million in the first quarter of 2016, as compared to the first quarter of 2015, due primarily to the absence in 2016 of reserve charges of $12.4 million recorded in 2015 associated with the FERC ROE complaint proceedings and a higher transmission rate base as a result of an increased investment in our transmission infrastructure.
Our natural gas distribution segment earnings decreased $4.7 million in the first quarter of 2016, as compared to the first quarter of 2015, due primarily to lower firm natural gas sales volumes driven by the warmer than normal weather in the first quarter of 2016, as compared to the much colder than normal temperatures in the first quarter of 2015. Partially offsetting this unfavorable earnings impact was a decrease in operations and maintenance costs primarily attributable to lower employee-related expenses and the impact of the NSTAR Gas base distribution rate increase effective January 1, 2016.
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.
A summary of our retail electric GWh sales volumes and our firm natural gas sales volumes in million cubic feet and percentage changes is as follows:
For the Three Months Ended March 31, 2016 Compared to 2015
Sales Volumes (GWh)
Percentage
Decrease
Traditional:
Residential
2,404
2,746
(12.5)%
Commercial
3,990
4,140
(3.6)%
Industrial
600
614
(2.3)%
Total – Traditional
6,994
7,500
(6.7)%
Decoupled:
2,943
3,470
(15.2)%
2,618
2,792
(6.2)%
664
686
(3.2)%
Total – Decoupled
6,225
6,948
(10.4)%
Total Sales Volumes
13,219
14,448
(8.5)%
33
Sales Volumes (million cubic feet)
Firm Natural Gas
6,642
8,987
(26.1)%
8,089
10,097
(19.9)%
4,466
5,191
(14.0)%
19,197
24,275
(20.9)%
9,309
12,467
(25.3)%
8,988
11,354
(20.8)%
1,854
2,476
(25.1)%
20,151
26,297
(23.4)%
39,348
50,572
(22.2)%
Total, Net of Special Contracts (1)
38,136
49,381
(22.8)%
Special contracts are unique to the traditional 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.
Retail electric sales volumes in the first quarter of 2016 at our electric utilities with a traditional rate structure (NSTAR Electric and PSNH) were significantly lower, as compared to the first quarter of 2015, due primarily to the impact of warmer than normal weather in the first quarter of 2016 throughout those service territories, as compared to the much colder than normal temperatures in the first quarter of 2015. First quarter 2016 heating degree days were 24.8 percent lower in the Boston metropolitan area, and 24.4 percent lower in New Hampshire, as compared to the same period in 2015.
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 $12.9 million in the first quarter of 2016, compared to $12.5 million in the first quarter of 2015.
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 2016, consolidated firm natural gas sales volumes were much lower, as compared to 2015. The 2016 firm natural gas sales volumes were negatively impacted by warmer than normal weather in the first quarter of 2016, as compared to the much colder than normal temperatures in the first quarter of 2015, throughout our natural gas service territories. First quarter 2016 heating degree days were 24.2 percent lower in Connecticut, as compared to the same period in 2015.
Liquidity
Consolidated: Cash and cash equivalents totaled $51 million as of March 31, 2016, compared with $23.9 million as of December 31, 2015.
Long-Term Debt Issuances: In March 2016, Eversource parent issued $250 million of 2.50 percent Series I Senior Notes, due to mature in 2021, and $250 million of 3.35 percent Series J Senior Notes, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program.
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, 2016 and December 31, 2015, NSTAR Electric had $148.5 million and $62.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $301.5 million and $387.5 million of available borrowing capacity as of March 31, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of March 31, 2016 and December 31, 2015 was 0.38 percent and 0.40 percent, respectively. NSTAR Electric is party to a five-year $450 million revolving credit facility, which terminates on September 4, 2020. The revolving credit facility serves to backstop NSTAR Electric's $450 million commercial paper program.
34
Cash Flows: Cash flows provided by operating activities totaled $500 million in the first quarter of 2016, compared with $491.5 million in the first quarter of 2015. The increase in operating cash flows was due primarily to timing and collections related to accounts receivable and the timing of regulatory recoveries, primarily at NSTAR Electric, resulting from the decrease in purchased power costs as well as an increase of $34.4 million in income tax refunds received in the first quarter of 2016, as compared to the same period in 2015. Partially offsetting these increases was an unfavorable impact related to changes in fuel inventory at PSNH.
On February 3, 2016, our Board of Trustees approved a common share dividend payment of $0.445 per share, which was paid on March 31, 2016 to shareholders of record as of March 2, 2016. This cash dividend of $141.2 million, compared with $132.5 million, or $0.4175 per share in the first quarter of 2015, represented an increase of 6.6 percent. On May 4, 2016, our Board of Trustees approved a common share dividend payment of $0.445 per share, payable on June 30, 2016 to shareholders of record as of May 31, 2016.
In the first quarter of 2016, CL&P, NSTAR Electric, PSNH, and WMECO paid $49.9 million, $90.3 million, $19.4 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 2016, investments for Eversource, CL&P, NSTAR Electric, PSNH, and WMECO were $431.5 million, $147.1 million, $91.3 million, $72.3 million, and $39.9 million, respectively.
Business Development and Capital Expenditures
Our consolidated capital expenditures, including amounts incurred but not paid, cost of removal, AFUDC, and the capitalized portions of pension expense (all of which are non-cash factors), totaled $368.5 million in the first quarter of 2016, compared to $310.5 million in the first quarter of 2015. These amounts included $24 million and $8.4 million in the first quarter of 2016 and 2015, respectively, related to information technology and facilities upgrades and enhancements, primarily at Eversource Service and The Rocky River Realty Company.
Natural Gas Transmission Business:
Access Northeast: Access Northeast is a natural gas pipeline and storage project (the "Project") being developed jointly by Eversource, Spectra Energy Corp and National Grid. Access Northeast will enhance the Algonquin and Maritimes & Northeast pipeline systems using existing routes and will include two new LNG storage tanks and liquefaction and vaporization facilities in Acushnet, Massachusetts that will be connected to the Algonquin natural gas pipeline. The Project 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 Spectra Energy Corp each own a 40 percent interest in the Project, with the remaining 20 percent interest owned by National Grid. The total projected cost for both the pipeline and the LNG storage is expected to be approximately $3 billion with anticipated in-service dates commencing in November 2018. The Project is subject to FERC and other federal and state regulatory approvals. On November 17, 2015, the FERC accepted the Project's request to initiate the pre-filing review process. Upon completion of the pre-filing review, a certificate application will be filed with the FERC.
Electric Transmission Business: Our consolidated electric transmission business capital expenditures increased by $13.5 million in the first quarter of 2016, as compared to the first quarter of 2015. A summary of electric transmission capital expenditures by company is as follows:
63.4
42.4
31.7
28.9
18.0
23.8
Total Electric Transmission Segment
139.7
126.2
GHCC: The Greater Hartford Central Connecticut (GHCC) solutions, which have been approved by ISO-NE, are comprised of 27 projects and are expected to cost approximately $350 million and be placed in service from 2016 through 2018. Through March 31, 2016, three projects have been placed in service. During the remainder of 2016, 13 additional projects are expected to be in active construction. All GHCC projects are expected to be completed by late 2018. As of March 31, 2016, CL&P had capitalized $66.2 million in costs associated with GHCC.
Northern Pass: Northern Pass is Eversource's planned HVDC transmission line from the Québec-New Hampshire border to Franklin, New Hampshire and an associated alternating current radial transmission line between Franklin and Deerfield, New Hampshire. Northern Pass will interconnect at the Québec-New Hampshire border with a planned HQ HVDC transmission line. On July 21, 2015, the DOE issued the draft Environmental Impact Statement (EIS) for Northern Pass representing a key milestone in the permitting process. In response to requests by the New Hampshire congressional delegation, the DOE announced that it would issue a supplement to the draft EIS. Public hearings on the draft EIS were held in March 2016. The DOE completed the comment period on April 4, 2016. On August 18, 2015, a revised route was announced with an additional 52 miles of the route underground in and around the White Mountain National Forest region. As a result, the NPT project cost estimate increased from $1.4 billion to $1.6 billion. Concurrently, NPT announced the Forward NH Plan, which is a commitment to allocate $200 million to projects associated with economic development, tourism, community betterment, and clean energy innovations to benefit the state of New Hampshire. This commitment is contingent upon the Northern Pass transmission line going into commercial operation.
On October 19, 2015, NPT filed its New Hampshire Site Evaluation Committee (NH SEC) application, which was accepted as complete by the NH SEC on December 18, 2015, allowing the formal siting process to move forward. The project is expected to be operational in the first half of 2019. On January 28, 2016, NPT bid into the three-state Clean Energy request for proposal (RFP) process. For further information on the RFP process, see "Regulatory Developments and Rate Matters – General – Clean Energy RFP" in this Management's Discussion and Analysis of Financial Conditions and Results of Operations.
Clean Energy Connect: The Clean Energy Connect project is a planned transmission, wind and hydro generation project that we plan to co-develop with experienced renewable generation companies. On January 28, 2016, the Clean Energy Connect project was bid into the three-state Clean Energy RFP process. Should the Clean Energy Connect Project be selected in the RFP process, our investment is currently estimated to be at least $400 million, and would involve the construction of a new 25-mile, 345kV transmission line with a 600 MW capacity from western Massachusetts to eastern New York. For further information on the RFP process, see "Regulatory Developments and Rate Matters – General – Clean Energy RFP" in this Management's Discussion and Analysis of Financial Conditions and Results of Operations.
Greater Boston Reliability Solutions: In February 2015, ISO-NE selected Eversource's and National Grid's proposed Greater Boston and New Hampshire Solution (Solution) to satisfy the requirements identified in the Greater Boston study. The Solution consists of a portfolio of some 40 electric transmission upgrades straddling southern New Hampshire and northern Massachusetts in the Merrimack Valley and continuing into the greater Boston metropolitan area. We are currently pursuing the necessary regulatory and siting application approvals in Massachusetts and New Hampshire. Construction has begun on several of the smaller projects not requiring siting approval, and construction on an additional project approved by the DPU is expected to begin in July 2016. 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 $544 million, of which approximately $66 million has been capitalized through March 31, 2016.
Seacoast Reliability Project: On April 12, 2016, PSNH filed a siting application with the NH SEC for the Seacoast Reliability Project, a 13-mile 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. This project is expected to be completed by the end of 2018. We estimate our investment in this project will be approximately $77 million.
Distribution Business: A summary of distribution capital expenditures is as follows:
CL&P:
Basic Business
39.1
27.2
Aging Infrastructure
26.5
34.2
Load Growth
9.0
11.5
Total CL&P
74.6
72.9
NSTAR Electric:
24.0
22.2
12.5
13.5
14.2
Total NSTAR Electric
50.7
39.6
PSNH:
15.1
12.3
14.4
9.2
3.5
Total PSNH
28.2
WMECO:
Total WMECO
9.4
Total - Electric Distribution (excluding Generation)
166.6
150.1
PSNH Generation
Natural Gas:
12.6
17.7
19.2
Total – Natural Gas Distribution
37.8
Total Electric and Natural Gas Distribution Segment
204.8
175.9
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.
36
FERC Regulatory Issues
FERC ROE Complaints I, II and III: Three separate complaints have been filed at FERC by combinations of New England state attorneys general, state regulatory commissions, consumer advocates, consumer groups, municipal parties and other parties (collectively the "Complainants"). The Complainants challenged the NETOs' base ROE of 11.14 percent and sought to reduce it both for the three separate 15-month complaint periods and prospectively. In 2014, the FERC ordered a 10.57 percent base ROE for the first complaint period and prospectively from October 16, 2014, and that a utility's total or maximum ROE shall not exceed the top of the new zone of reasonableness, which was set at 11.74 percent. We have refunded all amounts associated with the first complaint period.
As a result of developments in this matter, the Company recorded reserves across the complaint periods at its electric subsidiaries in the first quarter of 2015 and recognized an after-tax charge to earnings (excluding interest) of $12.4 million, of which $7.9 million was recorded at CL&P, $1.4 million at NSTAR Electric, $0.6 million at PSNH, and $2.5 million at WMECO.
On March 22, 2016, the FERC ALJ issued an initial decision on the second and third complaints. For the second complaint period, the FERC ALJ recommended a zone of reasonableness of 7.12 percent to 10.42 percent and a base ROE of 9.59 percent. For the third complaint period, the FERC ALJ recommended a zone of reasonableness of 7.04 percent to 12.19 percent and a base ROE of 10.90 percent. The FERC ALJ also affirmed that the maximum ROE for transmission incentive projects should be the top of the zone of reasonableness. The NETOs filed briefs on April 21, 2016, in which the NETOs identified corrections and requested changes that should be made to the FERC ALJ’s recommendations. A final FERC order is expected in late 2016 or early 2017. The final FERC order will determine both the base ROE and the maximum ROE for transmission incentive projects for the two complaint periods. The final FERC order, when issued, will also establish the prospective base ROE and maximum ROE for transmission incentive projects.
We have not recorded any additional reserves to reflect the ROEs recommended in the FERC ALJ initial decision. We do not believe any ROE outcome is more likely than the ROEs used to record our current reserves (a base ROE of 10.57 percent and a maximum ROE for transmission incentive projects of 11.74 percent). We are unable to predict the outcome of the final FERC order on the second and third complaints, and therefore, we believe that our current ROEs and reserves are appropriate at this time.
The impact of a 10 basis point change to our existing base ROE of 10.57 percent would affect Eversource's after-tax earnings by approximately $3 million for each of the 15-month second and third complaint periods. If we adjusted our reserves based on the recommendations in the FERC ALJ initial decision (for both the base ROE and maximum ROE for transmission incentive projects) for the second and third complaints, then it would result in an after-tax increase of approximately $34 million and an after-tax decrease of approximately $8 million, respectively, to our existing reserves.
FERC ROE Complaint IV: On April 29, 2016, a fourth complaint was filed with the FERC. At this time, we are unable to predict the outcome of this complaint.
Regulatory Developments and Rate Matters
General:
Clean Energy RFP: Pursuant to clean energy goals established in three New England states (Connecticut, Massachusetts and Rhode Island), in November 2015, the DEEP and the Massachusetts and Rhode Island EDCs, including CL&P, NSTAR Electric and WMECO, issued a request for proposal for clean energy resources (including Class I renewable generation and large hydroelectric generation) to a wide range of potentially interested bidders. The RFP solicited offers for clean energy and the transmission to deliver that energy to the three states. In late January 2016, bidders submitted project proposals, among which were the Northern Pass and Clean Energy Connect projects, selection of which will take place between April and July 2016. The expected timeframe within which EDCs will execute contracts and submit them for regulatory commission approval from their respective state regulators is from June through October 2016 with approval expected in late 2016.
New England Natural Gas Pipeline Capacity: NSTAR Electric and WMECO have filed with the DPU seeking approval of contracts for pipeline and storage capacity. PSNH has filed for approval with the NHPUC, seeking approval of its proposed contract for natural gas pipeline capacity and storage. On March 9, 2016, the Connecticut DEEP issued a draft of its RFP for natural gas pipeline capacity and expects that the final RFP will be issued in the first half of 2016.
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 three months of 2016, 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 2015 Form 10-K.
37
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. The Agreement was filed with the NHPUC on the same day. Under the terms of the Agreement, PSNH agreed to divest its generation assets upon NHPUC approval. The Agreement is designed to provide a resolution of issues pertaining to PSNH's generation assets in pending regulatory proceedings before the NHPUC. The Agreement provided for the Clean Air Project prudence proceeding to be resolved and all remaining Clean Air Project costs to be included in rates effective January 1, 2016. As part of the Agreement, PSNH agreed to forego recovery of $25 million of the deferred equity return related to the Clean Air Project. In addition, PSNH will not seek a general distribution rate increase effective before July 1, 2017 and will contribute $5 million to create a clean energy fund, which will not be recoverable from its customers. In 2015, PSNH recorded the $5 million contribution as a long-term liability and an increase to Operations and Maintenance expense on the statements of income.
Upon completion of the divestiture process, all remaining stranded costs will be recovered via bonds that will be secured by a non-bypassable charge or through other recoveries in rates billed to PSNH's customers.
On January 26, 2016, Advisory Staff of the NHPUC and the parties to the Agreement filed a stipulation with the NHPUC agreeing that near-term divestiture of PSNH's generation was in the public interest and that the Agreement should be approved. Implementation of the Agreement is subject to NHPUC approval, which is expected in 2016.
We believe that full recovery of PSNH's generation assets is probable through a combination of cash flows during the remaining operating period, sales proceeds upon divestiture, and recovery of stranded costs in future rates.
Legislative and Policy Matters
Massachusetts: On April 11, 2016, "An Act Relative to Solar Energy" became law, which raises the solar net metering cap levels by three percent for both private and public projects. Utilities may file proposals with the DPU to ensure that all distribution customers contribute to the fixed costs of maintaining distribution systems. We do not believe that this law will have a material financial impact on the Company.
New Hampshire: On May 2, 2016, "An Act Relative to Net Metering" became law, which raises the cap on net energy metering tariffs available to eligible customer generators from 50 MW to 100 MW and requires the NHPUC to initiate a proceeding to develop alternative net energy metering tariffs. We do not believe that this law will have a material financial impact on the Company.
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 2015 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 2015 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.
38
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, 2016 and 2015 included in this Quarterly Report on Form 10-Q:
Increase/
(Decrease)
Percent
(457.8)
%
754.9
1,162.1
(407.2)
(35.0)
320.1
333.4
(13.3)
174.0
163.8
21.0
60.6
(39.6)
(65.3)
137.2
146.6
(9.4)
159.9
149.4
10.5
1,567.1
2,015.9
(448.8)
(22.3)
98.2
94.8
(3.7)
(64.9)
392.3
408.4
(16.1)
(3.9)
146.2
153.2
(7.0)
(4.6)
246.1
255.2
(9.1)
(3.6)
(324.0)
(18.4)
(164.8)
(32.5)
34.3
Other and Eliminations
(3.1)
(3.3)
(a)
Total Operating Revenues
(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 million cubic feet were as follows:
Traditional
(506)
(6.7)
Decoupled
(723)
(10.4)
Total Electric
(1,229)
(8.5)
(5,078)
(20.9)
(6,146)
(23.4)
Total Firm Natural Gas
(11,224)
(22.2)
Operating Revenues, which primarily consist of base electric and natural gas distribution revenues and tracked revenues further described below, decreased by $457.8 million in the first quarter of 2016, as compared to the same period in 2015.
Base electric and natural gas distribution revenues: Base electric distribution segment revenues decreased $7.1 million due primarily to weather impacts. The impact of warmer than normal weather experienced in the first quarter of 2016, as compared to much colder than normal temperatures in the first quarter of 2015, was the primary driver of a 6.7 percent decrease in traditional retail sales volumes at NSTAR Electric and PSNH. Additionally, increased customer energy conservation efforts, including those resulting from company sponsored energy efficiency programs, contributed to the decrease in sales volumes. Also contributing to the decrease in operating revenues in the first quarter of 2016 was the absence of an $11 million benefit related to the Comprehensive Settlement Agreement associated with the recovery of LBR related to 2009 through 2011 energy efficiency programs recorded at NSTAR Electric in the first quarter of 2015. The decrease in base electric distribution revenues was partially offset by the 2015 PURA ADIT settlement agreement that is being collected from customers in distribution rates at CL&P ($6.6 million).
Firm natural gas base distribution segment revenues decreased $18 million due primarily to a 20.9 percent decrease in traditional firm natural gas sales volumes as a result of warmer than normal weather experienced in the first quarter of 2016, as compared to much colder than normal temperatures in the first quarter of 2015, partially offset by the impact of the NSTAR Gas base distribution rate increase effective January 1, 2016.
Fluctuations in CL&P's, WMECO's and NSTAR Gas' sales volumes do not impact the level of base distribution revenue realized or earnings due to their respective regulatory commission approved revenue decoupling mechanisms. The revenue decoupling mechanisms permit recovery of a base
39
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. Tracked electric distribution segment revenues decreased as a result of decreases in energy supply costs ($367.2 million), driven by decreased average retail rates and lower sales volumes, partially offset by an increase in retail electric transmission charges ($14.8 million) and an increase in federally mandated congestion charges ($11.4 million). Tracked natural gas distribution segment revenues decreased as a result of decreases in natural gas supply costs ($116.6 million), driven by decreased average rates and lower sales volumes, and a decrease in energy efficiency program revenues ($17.7 million).
Electric transmission revenues: The electric transmission segment revenues increased by $34.3 million due primarily to the absence in 2016 of a $20 million reserve charge recorded in the first quarter of 2015 associated with the March 2015 FERC ROE order, and the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Other: Other revenues decreased due primarily to the sale of Eversource's unregulated contracting business on April 13, 2015 ($11.4 million).
Purchased Power, Fuel and Transmission expense includes costs associated with purchasing electricity and natural gas on behalf of our customers. These energy supply costs are recovered from customers in rates through cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power, Fuel and Transmission expense decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to the following:
Increase/(Decrease)
(308.3)
(127.9)
29.0
Total Purchased Power, Fuel and Transmission
The decrease in purchased power costs at the electric distribution business was driven by lower sales volumes and lower prices associated with the procurement of energy supply, as well as a decrease in the amount of electricity generated by PSNH facilities. The decrease in purchased power costs at the natural gas distribution business was due to lower sales volumes and lower average natural gas prices. The increase in transmission costs was primarily the result of an increase in the RNS costs billed by ISO-NE.
Operations and Maintenance expense includes tracked costs and costs that are part of base electric and natural gas distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to the following:
Base Electric Distribution:
Absence of 2015 resolution of basic service bad debt adder mechanism at NSTAR Electric
24.2
Employee-related expenses, including labor and benefits
Vegetation management
Other operations and maintenance
Total Base Electric Distribution
14.9
Total Base Natural Gas Distribution:
(10.2)
Total Base Natural Gas Distribution
Total Tracked costs (Transmission and Electric and Natural Gas Distribution)
Other and eliminations:
Integration costs
Absence of Eversource's unregulated electrical contracting business due to sale in April 2015, net
(10.6)
(1.1)
Total Operations and Maintenance
Depreciation increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to higher utility plant in service balances.
40
Amortization of Regulatory Assets, Net, which are tracked costs, include the deferral of energy supply and energy-related costs included in certain regulatory-approved tracking mechanisms, and the amortization of certain costs. The deferral adjusts expense to match the corresponding revenues. Amortization of Regulatory Assets, Net, decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to the following:
CL&P (primarily energy and energy-related supply costs tracking mechanism)
(38.4)
NSTAR Electric (primarily the absence of the Comprehensive Settlement Agreement)
PSNH (primarily default energy service charge tracking mechanism)
(6.6)
(2.7)
(2.2)
Total Amortization of Regulatory Assets, Net
The deferral of energy supply and energy-related costs can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs. Energy supply and energy-related costs, which are the primary drivers in amortization, are recovered from customers in rates and have no impact on earnings.
Energy Efficiency Programs, which are tracked costs, decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to deferral adjustments at CL&P and the natural gas distribution businesses, which reflect the actual costs of energy efficiency programs, compared to the estimated amounts billed to customers. The deferrals adjust expense to match the energy efficiency programs revenue. Energy efficiency revenue was lower in the first quarter of 2016 as a result of lower retail sales. The impact of the deferral is partially offset by an increase in energy efficiency costs in accordance with the three-year program guidelines established by the DPU at NSTAR Electric. 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 increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to an increase in property taxes as a result of an increase in utility plant balances.
Interest Expense increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to higher interest on long-term debt ($6.7 million) as a result of new debt issuances in 2015, partially offset by lower interest on regulatory deferral mechanisms ($3.3 million).
Other Income, Net decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to a decrease in net gains related to the deferred compensation plans ($3.6 million).
Income Tax Expense decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to lower pre-tax earnings ($5.6 million) and the excess tax benefit due to the adoption of new accounting guidance related to share-based payment transactions ($2.5 million), partially offset by higher state taxes ($1.6 million).
41
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, 2016 and 2015 included in this Quarterly Report on Form 10-Q:
735.3
804.9
(69.6)
(8.6)
272.6
333.6
(61.0)
(18.3)
110.8
117.4
(5.6)
57.0
52.9
4.1
7.8
9.9
48.3
(79.5)
38.1
42.8
75.4
7.3
563.8
663.1
(99.3)
(15.0)
171.5
141.8
29.7
20.9
36.5
36.6
(59.1)
135.9
107.4
28.5
48.9
28.0
87.0
69.2
17.8
25.7
CL&P's retail sales volumes were as follows:
Retail Sales Volumes in GWh
5,350
5,994
(644)
(10.7)
CL&P's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $69.6 million in the first quarter of 2016, as compared to the same period in 2015.
Base distribution revenues increased by $7.7 million due to the 2015 PURA ADIT settlement agreement that is being collected from customers in distribution rates ($6.6 million) and the absence of an ROE penalty recorded in the first quarter of 2015 ($1.1 million).
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. Revenue decoupling mechanisms result 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. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($120.7 million) driven by decreased average retail rates and lower sales volumes. Partially offsetting this decrease was an increase in retail transmission charges ($12.4 million), an increase in federally mandated congestion charges ($11.4 million) and an increase in competitive transition assessment charges ($6.4 million). In addition, system benefits charge revenues increased by $4.1 million, which impacted earnings as a result of a higher rate base.
Transmission revenues increased by $15.4 million due primarily to the absence in 2016 of a $12.5 million reserve charge recorded in the first quarter of 2015 associated with the March 2015 FERC ROE order, and 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 in the first quarter of 2016, as compared to the same period in 2015, due primarily to the following:
Purchased Power Costs
Transmission Costs
Total Purchased Power and Transmission
Included in purchased power costs are the costs associated with CL&P's generation services charge (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 was due primarily to a decrease in the prices of standard offer supply and lower sales volumes. The increase in transmission costs was primarily the result of an increase in the RNS costs billed by ISO-NE.
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 in the first quarter of 2016, as compared to the same period in 2015, driven by a $6.6 million decrease in non-tracked costs, which was primarily attributable to lower contractor costs and lower employee-related expenses. Tracked costs, which have no earnings impact, were unchanged.
Depreciation expense increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to higher utility plant in service balances.
Amortization of Regulatory Assets, Net includes the deferral of energy supply and energy-related costs and the amortization of storm and other costs. Amortization of Regulatory Assets, Net decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to the deferral adjustment of energy supply and energy-related costs, which can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs. The deferral adjusts expense to match the corresponding revenues. Energy supply and energy-related costs, which are the primary drivers in amortization, are recovered from customers in rates and have no impact on earnings.
Energy Efficiency Programs, which are tracked costs, decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to the deferral adjustment, which reflects the actual costs of energy efficiency programs, compared to the estimated amounts billed to customers. The deferral adjusts expense to match the energy efficiency programs revenue, which was lower in 2016 as a result of lower retail sales. CL&P is allowed to recover its costs for state energy policy initiatives and expanded energy efficiency programs.
Taxes Other Than Income Taxes expense increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to an increase in property taxes as a result of an increase in utility plant balances and an increase in gross earnings taxes.
Other Income, Net decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to a decrease in net gains related to the deferred compensation plans ($1.4 million).
Income Tax Expense increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to higher pre-tax earnings ($10 million), higher state taxes ($0.8 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) ($0.4 million), partially offset by the excess tax benefit due to the adoption of new accounting guidance related to share-based payment transactions ($0.9 million).
EARNINGS SUMMARY
CL&P's earnings increased $17.8 million in the first quarter of 2016, as compared to the same period in 2015, due primarily to an increase in transmission earnings driven by the absence in 2016 of the 2015 FERC ROE complaint proceedings reserve charge as well as a higher transmission rate base, higher distribution revenues as a result of rate increases due to a higher rate base, and the expiration of a 2015 ROE penalty. In addition, earnings increased due to lower operations and maintenance costs, which were primarily attributable to lower contractor costs and lower employee-related expenses. These favorable earnings impacts were partially offset by higher property taxes and higher depreciation expense.
LIQUIDITY
Cash totaled $16.5 million as of March 31, 2016, compared with $1.1 million as of December 31, 2015.
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, 2016 and December 31, 2015 was 0.68 percent and 0.72 percent, respectively. As of March 31, 2016 and December 31, 2015, there were intercompany loans from Eversource parent to CL&P of $115.5 million and $277.4 million, respectively.
CL&P had cash flows provided by operating activities of $221.2 million in the first quarter of 2016, as compared to $133.9 million in the same period of 2015. The increase in operating cash flows was due primarily to the timing of collections and payments related to our working capital items, including accounts receivable and accounts payable. In addition, there was an increase of $17 million in income tax refunds received in the first quarter of 2016, as compared to the same period in 2015.
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 totaled $147.1 million in the first quarter of 2016.
Financing activities included $49.9 million in common stock dividends paid to Eversource parent in the first quarter of 2016.
43
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, 2016 and 2015 included in this Quarterly Report on Form 10-Q:
614.2
766.8
(152.6)
(19.9)
254.3
401.9
(147.6)
(36.7)
94.7
75.8
18.9
24.9
51.9
48.8
66.2
55.4
10.8
19.5
32.6
31.0
5.2
504.4
607.3
(102.9)
109.8
159.5
(49.7)
(31.2)
20.4
88.6
(51.1)
(36.6)
34.1
56.1
(22.0)
(39.2)
54.5
83.6
(29.1)
(34.8)
NSTAR Electric's retail sales volumes were as follows:
5,018
5,433
(415)
(7.7)
NSTAR Electric's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $152.6 million in the first quarter of 2016, as compared to the same period in 2015.
Base distribution revenues: Base distribution revenues, excluding LBR, decreased $12.1 million due primarily to weather impacts. The impact of warmer than normal weather experienced in the first quarter of 2016, as compared to much colder than normal temperatures in the first quarter of 2015, was the primary driver of a 7.7 percent decrease in sales volumes. Additionally, increased customer energy conservation efforts, including those resulting from company sponsored energy efficiency programs, contributed to the decrease in sales volumes. NSTAR Electric is allowed to recover LBR related to reductions in sales volumes as a result of successful energy efficiency programs.
Also contributing to the decrease in operating revenues in the first quarter of 2016 was the absence of an $11 million benefit recorded in the first quarter of 2015 related to the Comprehensive Settlement Agreement associated with the recovery of LBR related to 2009 through 2011 energy efficiency programs.
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. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($169.1 million) driven by lower sales volumes and decreased average retail rates. Partially offsetting this decrease was an increase in cost recovery related to energy efficiency programs ($11.2 million), an increase in retail transmission charges ($7.5 million) and an increase in net metering revenues ($6.4 million).
Transmission revenues increased by $7.5 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure and the absence in 2016 of a $2.4 million reserve charge recorded in the first quarter of 2015 associated with the March 2015 FERC ROE order.
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 in the first quarter of 2016, as compared to the same period in 2015, due primarily to the following:
(161.8)
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 sales volumes and lower prices associated with the procurement of energy supply. The increase in transmission costs was primarily the result of an increase in the RNS costs billed by ISO-NE.
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 in the first quarter of 2016, as compared to the same period in 2015, driven by a $21.8 million increase in non-tracked costs, which was primarily attributable to the absence in 2016 of the resolution of the basic service bad debt adder mechanism in 2015 ($24.2 million) and increased vegetation management expenses, partially offset by a decrease in employee-related expenses. Tracked costs, which have no earnings impact, decreased $2.9 million, which was primarily attributable to lower transmission operations expenses.
Amortization of Regulatory Assets/(Liabilities), Net, reflects the absence in 2016 of an $11.7 million benefit recognized in the first quarter of 2015 relating to the Comprehensive Settlement Agreement. The increase in amortization was partially offset by the deferral adjustment of certain costs that exceeded billed revenues in the first quarter of 2016, as compared to the same period in 2015. The deferral adjusts expense to match the corresponding revenues. These deferred costs, which can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs, are recovered from customers in rates and have no impact on earnings.
Energy Efficiency Programs, which are tracked costs, increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to an increase in energy efficiency costs incurred in accordance with the three-year program guidelines established by the DPU.
Taxes Other Than Income Taxes expense increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to an increase in property taxes as a result an increase in utility plant balances.
Income Tax Expense decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to lower pre-tax earnings ($17.9 million), lower state taxes ($2.8 million), and the excess tax benefit due to the adoption of new accounting guidance related to share-based payment transactions ($0.9 million).
NSTAR Electric's earnings decreased $29.1 million in the first quarter of 2016, as compared to the same period in 2015, due primarily to the absence in 2016 of the 2015 resolution of the basic service bad debt adder mechanism ($14.5 million), the absence in 2016 of the 2015 favorable impact associated with the Comprehensive Settlement Agreement ($13 million), lower retail sales volumes, and higher depreciation expense. These unfavorable earnings impacts were partially offset by an increase in transmission earnings, which was driven by a higher transmission rate base as well as the absence in 2016 of the 2015 FERC ROE complaint proceedings reserve charge.
NSTAR Electric had cash flows provided by operating activities of $96.3 million in the first quarter of 2016, as compared to $221.3 million in the same period of 2015. The decrease in operating cash flows was due primarily to changes related to our working capital items, including the timing of collections and payments of affiliated company receivables and accounts payable, as well as the use of inventory. In addition, there was a $53.6 million reduction in income tax refunds received in the first quarter of 2016, as compared to the same period in 2015. Also contributing to the decrease in operating cash flows was an increase in Pension Plan contributions of $12.8 million in the first quarter of 2016, as compared to the same period in 2015. Partially offsetting these unfavorable impacts was the timing of regulatory recoveries resulting from the decrease in purchased power costs.
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, 2016 and December 31, 2015, NSTAR Electric had $148.5 million and $62.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $301.5 million and $387.5 million of available borrowing capacity as of March 31, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of March 31, 2016 and December 31, 2015 was 0.38 percent and 0.40 percent, respectively. NSTAR Electric is a party to a five-year $450 million revolving credit facility, which terminates on September 4, 2020. The facility serves to backstop NSTAR Electric's $450 million commercial paper program.
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, 2016 and 2015 included in this Quarterly Report on Form 10-Q:
242.3
284.8
(42.5)
(14.9)
50.2
99.6
(49.4)
(49.6)
58.4
28.3
25.6
8.5
(43.7)
(5.3)
21.8
19.1
14.1
171.6
221.6
(50.0)
(22.6)
70.7
63.2
7.5
52.3
22.3
36.1
32.0
12.8
PSNH's retail sales volumes were as follows:
1,976
2,067
(91)
PSNH's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $42.5 million in the first quarter of 2016, as compared to the same period in 2015.
Base distribution revenues: Base distribution revenues decreased $2.6 million due primarily to weather impacts. The impact of warmer than normal weather experienced in the first quarter of 2016, as compared to much colder than normal temperatures in the first quarter of 2015, was the primary driver of a 4.4 percent decrease in sales volumes. Additionally, increased customer energy conservation efforts, including those resulting from company sponsored energy efficiency programs, contributed to the decrease in sales volumes. Partially offsetting this decrease was a $1.8 million increase as a result of a distribution rate increase effective July 1, 2015.
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. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs and a reduction in wholesale generation revenues in the first quarter of 2016, as compared to the first quarter of 2015 ($46.9 million), driven by lower sales volumes and decreased average retail rates.
Transmission revenues increased by $5.5 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure and the absence in 2016 of a $1 million reserve charge recorded in the first quarter of 2015 associated with the March 2015 FERC ROE order.
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 decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to the following:
(Decrease)/Increase
Purchased Power and Generation Fuel Costs
In order to meet the demand of customers who have not migrated to third party suppliers, PSNH procures power through long-term power supply contracts and short-term purchases and spot purchases in the competitive New England wholesale power market and/or produces power through its own generation. The decrease in purchased power and generation fuel costs was due primarily to a decrease in the amount of electricity generated by PSNH facilities.
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 in the first quarter of 2016, as compared to the same period in 2015, driven by a $0.8 million increase in various tracked costs, which have no earnings impact.
Amortization of Regulatory Assets, Net, includes the deferral 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 in the first quarter of 2016, as compared to the same period in 2015, was due primarily to a decrease in the default energy service charge. The deferral adjusts expense to match the corresponding revenues.
Income Tax Expense increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to higher pre-tax earnings ($2.1 million).
PSNH's earnings increased $4.1 million in the first quarter of 2016, as compared to the same period in 2015, due primarily to an increase in transmission earnings, which was driven by a higher transmission rate base as well as the absence in 2016 of the 2015 FERC ROE complaint proceedings reserve charge, higher generation earnings due primarily to the timing of recording REC revenues, and the impact of the distribution rate increase effective July 1, 2015. These favorable earnings impacts were partially offset by lower retail sales volumes, higher property tax expense and higher depreciation expense.
PSNH had cash flows provided by operating activities of $156.3 million in the first quarter of 2016, as compared to $113.9 million in the same period in 2015. The increase in operating cash flows was due primarily to an increase of $52.1 million in income tax refunds received in 2016, as compared to the same period in 2015. In addition, the timing of collections and payments related to our working capital items, including accounts receivable and accounts payable favorably impacted the first quarter 2016 operating cash flows, as compared to the same period in 2015. Partially offsetting these favorable impacts was an increase in Pension Plan contributions of $9.9 million in 2016 and the use of fuel inventories.
47
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, 2016 and 2015 included in this Quarterly Report on Form 10-Q:
128.1
152.9
(24.8)
(16.2)
39.5
69.7
(30.2)
(43.3)
19.8
10.4
(69.2)
11.1
95.0
124.3
(29.3)
(23.6)
33.1
28.6
15.7
6.8
20.6
11.0
16.8
13.2
27.3
WMECO's retail sales volumes were as follows:
876
955
(79)
(8.3)
WMECO's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $24.8 million in the first quarter of 2016, as compared to the same period in 2015.
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. Revenue decoupling mechanisms result 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. Tracked revenues decreased due primarily to a decrease in energy supply costs ($30.5 million) driven by lower sales volumes and decreased average retail rates.
Transmission revenues increased by $5.9 million due primarily to the absence in 2016 of a $4.1 million reserve charge recorded in the first quarter of 2015 associated with the March 2015 FERC ROE order and higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission expense includes costs associated with the procurement 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 decreased in the first quarter of 2016, as compared to the same period in 2015, due primarily to the following:
(31.5)
Included in purchased power costs are the costs associated with WMECO's basic service charge and deferred energy supply costs. The basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs was due primarily to lower sales volumes and lower prices associated with the procurement of energy supply.
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 in the first quarter of 2016, as compared to the same period in 2015, driven by a $2.3 million increase in tracked costs, which have no earnings impact, that was primarily attributable to the deferral of RECs generated and sold by the WMECO solar program, partially offset by a reduction in non-tracked costs of $0.3 million.
Amortization of Regulatory Assets, Net, decreased in the first quarter of 2016, as compared to the same period in 2015, due to fluctuations in energy and energy related costs based on timing of costs incurred and related rate changes to recover these costs. Energy and energy related costs are recovered from customers in rates and have no impact on earnings.
Taxes Other Than Income Taxes expense increased in the first quarter of 2016, as compared to the same period in 2015, due to an increase in property taxes as a result of an increase in utility plant balances.
Income Tax Expense increased in the first quarter of 2016, as compared to the same period in 2015, due primarily to higher pre-tax earnings ($1.6 million), partially offset by items that impact our tax rate as a result of regulatory treatment (flow-through items) ($0.4 million).
WMECO's earnings increased $3.6 million in the first quarter of 2016, as compared to the same period in 2015, due primarily to an increase in transmission earnings, which was driven by the absence in 2016 of the 2015 FERC ROE complaint proceedings reserve charge as well as a higher transmission rate base, and lower interest expense on long-term debt. These favorable earnings impacts were partially offset by higher depreciation expense and higher property and other taxes expense.
WMECO had cash flows provided by operating activities of $50.7 million in the first quarter of 2016, as compared to cash flows used in operating activities of $1.4 million in the same period of 2015. The increase in operating cash flows was due primarily to an increase of $22.7 million in income tax refunds in the first quarter of 2016, as compared to the same period in 2015. In addition, the increase in operating cash flows was due to the timing of regulatory recoveries relating to purchased power costs and the timing of collections of accounts receivable, partially offset by the timing of payments related to accounts payable.
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, 2016, our Regulated companies did not hold collateral (letters of credit) from counterparties related to our standard service contracts. As of March 31, 2016, Eversource had $18 million of cash posted with ISO-NE related to energy purchase 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 2015 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 2015 Form 10-K.
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, 2016 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, 2016 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
PART II. OTHER INFORMATION
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 2015 Form 10-K. These disclosures are incorporated herein by reference.
As previously disclosed, the Yankee Companies each filed lawsuits against the DOE in August 2013 seeking recovery of actual damages incurred in the years 2009 through 2012, as described under the caption "Yankee Companies v. U.S. Department of Energy" "- DOE Phase III Damages" in Part I, Item 3, "Legal Proceedings" of our 2015 Form 10-K. On March 25, 2016, the court issued its decision awarding CYAPC, YAEC, and MYAPC damages of $32.6 million, $19.6 million and $24.6 million, respectively. In total, the Yankee Companies were awarded $76.8 million of the $77.9 million in damages sought by the Yankee Companies in Phase III. The parties have 60 days following the final judgment date to appeal.
There have been no additional material legal proceedings identified and no further material changes with regard to the legal proceedings previously disclosed in our 2015 Form 10-K.
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 2015 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 2015 Form 10-K.
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 Numberof SharesPurchased
AveragePricePaid perShare
Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans orPrograms
Approximate DollarValue of Shares thatMay Yet Be PurchasedUnder the Plans andPrograms (at month end)
January 1 – January 31, 2016
122,281
51.36
February 1 – February 29, 2016
275,608
54.58
March 1 – March 31, 2016
128,547
56.93
526,436
54.41
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.
Listing of Exhibits (Eversource)
* 4
Seventh Supplemental Indenture between Eversource Energy, and The Bank of New York Trust Company N.A., as Trustee, dated as of March 1, 2016, relating to $250,000,000 aggregate principal amount of its Senior Notes, Series I, Due 2021, and $250,000,000 aggregate principal amount of its Senior Notes, Series J, Due 2026 (incorporated by reference to Exhibit 4.1 of the Eversource Energy Current Report on Form 8-K filed on March 15, 2016, 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
31.1
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)
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)
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)
Certification by the Chairman of Public Service Company of New Hampshire pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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)
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
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 6, 2016
By:
/s/
Jay S. Buth
Vice President, Controller and Chief Accounting Officer
NSTAR ELECTRIC COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
55