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 June 30, 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: (860) 286-5000
04-2147929
0-00404
THE CONNECTICUT LIGHT AND POWER COMPANY(a Connecticut corporation)107 Selden StreetBerlin, Connecticut 06037-1616 Telephone: (860) 286-5000
06-0303850
1-02301
NSTAR ELECTRIC COMPANY(a Massachusetts corporation)800 Boylston StreetBoston, Massachusetts 02199Telephone: (860) 286-5000
04-1278810
1-6392
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE (a New Hampshire corporation)Energy Park780 North Commercial StreetManchester, New Hampshire 03101-1134Telephone: (860) 286-5000
02-0181050
0-7624
WESTERN MASSACHUSETTS ELECTRIC COMPANY(a Massachusetts corporation)300 Cadwell DriveSpringfield, Massachusetts 01104Telephone: (860) 286-5000
04-1961130
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes
No
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 July 31, 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
McF
Million cubic feet
MGP
Manufactured Gas Plant
MMBtu
One million British thermal units
Moody's
Moody's Investors Services, Inc.
MW
Megawatt
MWh
Megawatt-Hours
NEEWS
New England East-West Solution
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 SUBSIDIARIES THE 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 Financial Statements (Unaudited)
16
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Eversource Energy and Subsidiaries
32
46
NSTAR Electric Company and Subsidiary
49
Public Service Company of New Hampshire and Subsidiary
51
53
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
55
ITEM 4.
Controls and Procedures
PART II – OTHER INFORMATION
Legal Proceedings
56
ITEM 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 6.
Exhibits
57
SIGNATURES
59
iii
EVERSOURCE ENERGY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
December 31,
(Thousands of Dollars)
2016
2015
ASSETS
Current Assets:
Cash and Cash Equivalents
$
38,726
23,947
Receivables, Net
806,340
775,480
Unbilled Revenues
203,824
202,647
Taxes Receivable
103,926
305,359
Fuel, Materials, Supplies and Inventory
292,547
336,476
Regulatory Assets
863,360
845,843
Prepayments and Other Current Assets
106,561
129,034
Total Current Assets
2,415,284
2,618,786
Property, Plant and Equipment, Net
20,448,475
19,892,441
Deferred Debits and Other Assets:
3,661,578
3,737,960
Goodwill
3,519,401
Marketable Securities
518,750
516,478
Other Long-Term Assets
319,175
295,243
Total Deferred Debits and Other Assets
8,018,904
8,069,082
Total Assets
30,882,663
30,580,309
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Notes Payable
767,000
1,160,953
Long-Term Debt - Current Portion
178,883
228,883
Accounts Payable
631,566
813,646
Obligations to Third Party Suppliers
133,943
128,564
Regulatory Liabilities
119,413
107,759
Other Current Liabilities
472,964
549,985
Total Current Liabilities
2,303,769
2,989,790
Deferred Credits and Other Liabilities:
5,398,926
5,147,678
527,678
513,595
Derivative Liabilities
381,572
337,102
Accrued Pension, SERP and PBOP
1,294,548
1,407,288
Other Long-Term Liabilities
875,270
871,499
Total Deferred Credits and Other Liabilities
8,477,994
8,277,162
Capitalization:
Long-Term Debt
9,435,924
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
6,252,514
6,262,368
Retained Earnings
2,962,843
2,797,355
Accumulated Other Comprehensive Loss
(65,364)
(66,844)
Treasury Stock
(309,977)
Common Shareholders' Equity
10,509,408
10,352,215
Total Capitalization
20,100,900
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 June 30,
For the Six Months Ended June 30,
(Thousands of Dollars, Except Share Information)
Operating Revenues
1,767,184
1,817,061
3,822,819
4,330,491
Operating Expenses:
Purchased Power, Fuel and Transmission
581,260
685,118
1,336,119
1,847,167
Operations and Maintenance
320,714
316,641
640,850
650,024
Depreciation
176,507
163,668
350,492
327,505
Amortization of Regulatory (Liabilities)/Assets, Net
(8,716)
(1,166)
12,281
59,438
Energy Efficiency Programs
119,667
101,850
256,842
248,452
Taxes Other Than Income Taxes
154,330
138,935
314,277
288,415
Total Operating Expenses
1,343,762
1,405,046
2,910,861
3,421,001
Operating Income
423,422
412,015
911,958
909,490
Interest Expense
100,492
92,259
198,703
187,102
Other Income, Net
8,038
12,899
10,049
18,626
Income Before Income Tax Expense
330,968
332,655
723,304
741,014
Income Tax Expense
125,439
123,268
271,742
276,494
Net Income
205,529
209,387
451,562
464,520
Net Income Attributable to Noncontrolling Interests
1,880
3,759
Net Income Attributable to Common Shareholders
203,649
207,507
447,803
460,761
Basic and Diluted Earnings Per Common Share
0.64
0.65
1.41
1.45
Dividends Declared Per Common Share
0.45
0.42
0.89
0.84
Weighted Average Common Shares Outstanding:
Basic
317,785,495
317,613,166
317,651,319
317,352,004
Diluted
318,476,699
318,559,568
318,478,876
318,525,378
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other Comprehensive (Loss)/Income, Net of Tax:
Qualified Cash Flow Hedging Instruments
534
509
1,068
1,018
Changes in Unrealized Gains/(Losses) on Marketable Securities
1,061
(1,248)
1,325
(1,116)
Changes in Funded Status of Pension, SERP and PBOP Benefit Plans
(1,784)
1,120
(913)
2,074
Other Comprehensive (Loss)/Income, Net of Tax
(189)
381
1,480
1,976
Comprehensive Income Attributable to Noncontrolling Interests
(1,880)
(3,759)
Comprehensive Income Attributable to Common Shareholders
203,460
207,888
449,283
462,737
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities:
Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities:
Deferred Income Taxes
250,851
176,800
Pension, SERP and PBOP Expense
22,659
48,432
Pension and PBOP Contributions
(65,929)
(31,032)
Regulatory Underrecoveries, Net
(5,768)
(73,547)
Amortization of Regulatory Assets, Net
Other
(10,808)
(38,521)
Changes in Current Assets and Liabilities:
Receivables and Unbilled Revenues, Net
(76,751)
(123,984)
43,930
60,044
Taxes Receivable/Accrued, Net
230,075
214,577
(151,996)
(228,176)
Other Current Assets and Liabilities, Net
(72,160)
9,226
Net Cash Flows Provided by Operating Activities
978,438
865,282
Investing Activities:
Investments in Property, Plant and Equipment
(869,168)
(740,379)
Proceeds from Sales of Marketable Securities
327,581
427,990
Purchases of Marketable Securities
(322,244)
(408,242)
Other Investing Activities
(2,991)
4,821
Net Cash Flows Used in Investing Activities
(866,822)
(715,810)
Financing Activities:
Cash Dividends on Common Shares
(282,314)
(264,936)
Cash Dividends on Preferred Stock
Decrease in Notes Payable
(393,953)
(449,375)
Issuance of Long-Term Debt
800,000
750,000
Retirements of Long-Term Debt
(200,000)
(166,577)
Other Financing Activities
(16,811)
(17,059)
Net Cash Flows Used in Financing Activities
(96,837)
(151,706)
Net Increase/(Decrease) in Cash and Cash Equivalents
14,779
(2,234)
Cash and Cash Equivalents - Beginning of Period
38,703
Cash and Cash Equivalents - End of Period
36,469
THE CONNECTICUT LIGHT AND POWER COMPANY
CONDENSED BALANCE SHEETS
Cash
9,449
1,057
370,982
352,536
Accounts Receivable from Affiliated Companies
9,703
21,214
99,822
99,879
12,498
137,643
312,160
268,318
Materials and Supplies
52,538
43,124
15,826
32,234
882,978
956,005
7,336,577
7,156,809
1,368,897
1,369,028
121,477
111,115
1,490,374
1,480,143
9,709,929
9,592,957
Notes Payable to Eversource Parent
93,000
277,400
150,000
-
219,332
267,764
Accounts Payable to Affiliated Companies
60,169
66,456
61,532
60,746
63,287
61,155
91,603
91,820
122,886
110,631
861,809
935,972
1,922,428
1,820,865
80,617
74,830
380,643
336,189
247,419
271,056
131,883
133,446
2,762,990
2,636,386
2,614,878
2,763,682
Preferred Stock Not Subject to Mandatory Redemption
116,200
Common Stockholder's Equity:
Common Stock
60,352
2,056,389
1,910,663
1,237,620
1,170,278
(309)
(576)
Common Stockholder's Equity
3,354,052
3,140,717
6,085,130
6,020,599
The accompanying notes are an integral part of these unaudited condensed financial statements.
CONDENSED STATEMENTS OF INCOME
679,787
666,554
1,415,103
1,471,471
Purchased Power and Transmission
234,504
253,180
507,104
586,799
122,532
118,687
233,375
236,044
57,532
52,191
114,500
105,094
(2,988)
(7,530)
6,891
40,776
35,498
33,963
73,589
76,770
70,568
62,102
146,030
130,181
517,646
512,593
1,081,489
1,175,664
162,141
153,961
333,614
295,807
35,978
36,124
72,477
72,748
6,275
4,062
7,211
6,221
132,438
121,899
268,348
229,280
49,563
43,129
98,427
81,276
82,875
78,770
169,921
148,004
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Other Comprehensive Income, Net of Tax:
111
222
36
(43)
45
(39)
Other Comprehensive Income, Net of Tax
147
68
267
183
Comprehensive Income
83,022
78,838
170,188
148,187
CONDENSED STATEMENTS OF CASH FLOWS
97,913
30,145
Pension, SERP, and PBOP Expense, Net of PBOP Contributions
3,325
7,079
(40,386)
(55,302)
(4,477)
(2,432)
(26,729)
(73,279)
145,852
123,051
(38,137)
(55,192)
774
2,085
429,447
270,029
(288,630)
(242,346)
Proceeds from the Sale of Property, Plant and Equipment
9,047
205
(1,362)
(279,378)
(243,708)
Cash Dividends on Common Stock
(99,800)
(98,000)
(2,779)
Capital Contributions from Eversource Parent
145,700
300,000
Retirement of Long-Term Debt
(162,000)
Decrease in Notes Payable to Eversource Parent
(184,400)
(47,800)
(398)
(8,871)
(141,677)
(19,450)
Net Increase in Cash
8,392
6,871
Cash - Beginning of Period
2,356
Cash - End of Period
9,227
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
3,391
3,346
254,376
229,936
12,241
4,034
43,115
29,464
21,564
70,236
Materials, Supplies and Inventory
40,292
75,487
316,715
348,408
9,510
11,448
701,204
772,359
5,788,659
5,655,458
1,112,099
1,112,977
61,886
62,467
1,173,985
1,175,444
7,663,848
7,603,261
329,000
62,500
200,000
146,868
228,250
46,174
38,648
61,538
56,718
Renewable Portfolio Standards Compliance Obligations
44,239
104,847
6,923
3,281
58,770
72,007
693,512
766,251
1,809,408
1,760,339
267,809
264,352
194,734
209,153
124,877
120,939
2,396,828
2,354,783
2,077,687
1,829,766
43,000
995,378
1,456,919
1,613,538
Accumulated Other Comprehensive Income
524
545
2,452,821
2,609,461
4,573,508
4,482,227
591,301
617,196
1,205,517
1,384,004
219,189
283,129
473,525
684,995
88,954
69,430
183,650
145,254
52,571
48,949
104,457
97,716
Amortization of Regulatory Assets/(Liabilities), Net
3,971
(7,336)
8,654
(12,901)
61,922
41,733
128,165
97,150
34,194
29,876
66,750
60,841
460,801
465,781
965,201
1,073,055
130,500
151,415
240,316
310,949
20,216
17,781
41,104
38,227
2,836
2,533
2,502
3,136
113,120
136,167
201,714
275,858
44,953
54,204
79,053
110,335
68,167
81,963
122,661
165,523
Other Comprehensive Loss, Net of Tax:
Changes in Funded Status of SERP Benefit Plan
(11)
(2)
(21)
(182)
Other Comprehensive Loss, Net of Tax
68,156
81,961
122,640
165,341
48,505
61,734
Pension and PBOP Contributions, Net of Pension, SERP and PBOP Expense
(13,236)
(264)
Regulatory Over/(Under) Recoveries, Net
26,277
(96,290)
(3,978)
(28,653)
(56,140)
(91,753)
35,194
17,595
45,608
100,661
(88,774)
(30,839)
(64,084)
25,076
165,144
207,605
(199,824)
(188,103)
(188,050)
(278,300)
(99,000)
(980)
Increase in Notes Payable
266,500
75,200
250,000
(4,700)
(2,495)
Net Cash Flows Provided by/(Used in) Financing Activities
34,725
(29,480)
Increase/(Decrease) in Cash and Cash Equivalents
(9,925)
12,773
2,848
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
1,084
1,733
77,389
77,546
3,938
2,352
38,275
38,207
8,848
43,128
151,475
156,868
122,879
104,971
19,570
24,302
423,458
449,107
2,925,288
2,855,363
238,612
257,873
34,886
34,176
273,498
292,049
3,622,244
3,596,519
120,900
231,300
96,059
87,925
21,049
24,214
5,986
6,898
37,264
43,921
281,258
394,258
746,785
705,894
47,283
47,851
75,721
89,579
50,318
50,746
920,107
894,070
1,071,532
1,071,017
831,634
748,634
523,414
494,901
(5,701)
(6,361)
1,349,347
1,237,174
2,420,879
2,308,191
218,517
241,875
460,807
526,722
45,653
47,938
95,867
147,516
63,788
76,468
123,001
134,895
28,644
25,751
56,879
51,397
(8,186)
12,050
332
27,181
3,259
3,356
6,879
7,128
22,287
22,249
44,082
41,331
155,445
187,812
327,040
409,448
63,072
54,063
133,767
117,274
12,526
11,662
24,987
22,935
282
1,245
432
1,628
50,828
43,646
109,212
95,967
19,573
15,701
41,899
35,977
31,255
27,945
67,313
59,990
291
290
581
63
(75)
79
(67)
354
215
660
514
31,609
28,160
67,973
60,504
45,976
47,454
(10,740)
(3,089)
(8,484)
8,726
(5,247)
(6,597)
5,394
11,019
33,840
(20,414)
20,417
(21,362)
(1,422)
(3,792)
204,258
150,513
(138,713)
(140,171)
172
169
(138,541)
(140,002)
(38,800)
(53,000)
83,000
(Decrease)/Increase in Notes Payable to Eversource Parent
(110,400)
(166)
(66,366)
(10,182)
Net (Decrease)/Increase in Cash
(649)
329
489
818
WESTERN MASSACHUSETTS ELECTRIC COMPANY
1,421
834
54,685
50,912
9,139
18,633
13,928
15,065
422
33,407
57,660
56,166
8,598
7,882
145,853
182,899
1,616,305
1,575,306
124,804
135,010
27,625
24,875
152,429
159,885
1,914,587
1,918,090
53,700
143,400
32,783
58,364
19,935
19,896
10,336
9,654
11,251
6,395
11,256
13,122
11,556
13,878
150,817
264,709
487,389
470,539
13,280
11,597
12,135
19,515
40,175
36,819
552,979
538,470
566,885
517,329
10,866
426,398
391,398
209,232
198,140
(2,590)
(2,822)
643,906
597,582
1,210,791
1,114,911
116,396
125,194
244,491
278,058
32,665
43,055
72,228
112,716
22,088
20,104
43,893
39,889
11,476
10,848
22,847
21,223
992
3,336
2,203
7,264
10,347
9,519
21,203
20,594
9,600
9,398
19,833
18,833
87,168
96,260
182,207
220,519
29,228
28,934
62,284
57,539
6,072
6,291
12,075
13,112
Other Income/(Loss), Net
104
(46)
1,819
23,260
23,888
50,163
46,246
9,995
9,693
20,071
18,807
13,265
14,195
30,092
27,439
110
84
219
(12)
120
72
232
158
13,385
14,267
30,324
27,597
17,155
12,503
(2,651)
(7,911)
(2,547)
(3,598)
6,500
(11,593)
32,985
18,774
(13,176)
(21,056)
859
95,910
43,904
(71,459)
(62,966)
1,484
49,739
(1,457)
(50,118)
(71,432)
(63,345)
(19,000)
(18,600)
Capital Contribution from Eversource Parent
35,000
(89,700)
39,200
50,000
(191)
(16)
Net Cash Flows (Used in)/Provided by Financing Activities
(23,891)
20,584
587
1,143
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 Combined Notes to Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of the Eversource 2015 Form 10-K, which was filed with the SEC. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The financial statements contain, in the opinion of management, all adjustments (including normal, recurring adjustments) necessary to present fairly Eversource's, CL&P's, NSTAR Electric's, PSNH's and WMECO's financial position as of June 30, 2016 and December 31, 2015, the results of operations and comprehensive income for the three and six months ended June 30, 2016 and 2015, and the cash flows for the six months ended June 30, 2016 and 2015. The results of operations and comprehensive income for the three and six months ended June 30, 2016 and 2015 and the cash flows for the six months ended June 30, 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 June 30, 2016 of $20.7 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 June 30, 2016 was approximately $48 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, including balance sheet recognition of leases previously deemed operating leases, and expects to implement them in the first quarter of 2019.
Recently Adopted Accounting Standards: 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 benefits 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 $2.7 million for the six months ended June 30, 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 six months ended June 30, 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 are included in Regulatory Assets or Other Long-Term Assets on the balance sheets.
The total provisions 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 June 30, 2016
As of December 31, 2015
Eversource
205.5
190.7
123.7
118.5
82.7
79.5
66.2
68.1
56.9
52.6
28.6
25.3
9.6
8.7
15.3
14.0
8.4
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
For the Six Months Ended
June 30, 2016
June 30, 2015
37.5
33.2
79.8
75.1
33.6
29.5
69.6
62.5
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 June 30, 2015
186.3
142.3
59.5
47.2
38.5
31.1
25.6
14.6
13.7
2.
REGULATORY ACCOUNTING
Eversource's Regulated companies are subject to rate-regulation that is based on cost recovery and meets the criteria for application of accounting guidance for rate-regulated operations, which considers the effect of regulation on the timing of the recognition of certain revenues and expenses. The Regulated companies' financial statements reflect the effects of the rate-making process. The rates charged to the customers of Eversource's Regulated companies are designed to collect each company's costs to provide service, including a return on investment.
Management believes it is probable that each of the Regulated companies will recover 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
1,754.1
1,828.2
413.7
388.0
Income Taxes, Net
644.3
650.9
Storm Restoration Costs
428.9
436.9
Goodwill-related
474.6
484.9
Regulatory Tracker Mechanisms
562.5
526.5
Contractual Obligations - Yankee Companies
117.3
134.4
Other Regulatory Assets
129.6
134.0
Total Regulatory Assets
4,525.0
4,583.8
Less: Current Portion
863.4
845.8
Total Long-Term Regulatory Assets
3,661.6
3,738.0
NSTAR
Electric
383.2
477.0
160.0
77.9
413.6
479.9
164.2
84.9
411.3
2.4
380.8
1.3
442.5
86.3
28.2
31.0
444.4
85.7
34.5
31.8
269.5
117.7
21.7
20.0
271.4
110.9
31.5
23.1
407.5
416.3
96.6
287.0
120.5
41.5
45.1
311.0
101.2
40.1
78.0
50.9
12.1
82.0
56.3
11.3
1,681.1
1,428.8
361.5
182.5
1,637.3
1,461.4
362.9
191.2
312.2
316.7
122.9
57.7
268.3
348.4
105.0
56.2
1,368.9
1,112.1
238.6
124.8
1,369.0
1,113.0
257.9
135.0
Regulatory Costs in Other Long-Term Assets: The Regulated companies had $83 million (including $2.6 million for CL&P, $38.5 million for NSTAR Electric, $5.5 million for PSNH and $19.4 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 June 30, 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
448.5
437.1
104.4
99.7
AFUDC - Transmission
65.7
66.1
Other Regulatory Liabilities
28.5
18.5
Total Regulatory Liabilities
647.1
621.4
119.4
107.8
Total Long-Term Regulatory Liabilities
527.7
513.6
30.4
261.6
46.6
4.6
24.1
257.4
2.8
50.0
6.1
3.2
11.1
3.3
3.4
12.9
6.0
8.8
51.5
5.7
8.9
12.6
1.0
3.5
0.1
4.2
143.9
274.7
53.3
24.6
136.0
267.7
54.8
24.7
63.3
6.9
61.2
13.1
80.6
267.8
47.3
13.3
74.8
264.4
47.9
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
13,425.4
13,054.8
Distribution - Natural Gas
2,819.9
2,727.2
Transmission - Electric
7,896.3
7,691.9
Generation
1,218.3
1,194.1
Electric and Natural Gas Utility
25,359.9
24,668.0
Other (1)
583.5
558.6
Property, Plant and Equipment, Gross
25,943.4
25,226.6
Less: Accumulated Depreciation
(6,342.9)
(6,141.1)
(274.5)
(255.6)
Total Accumulated Depreciation
(6,617.4)
(6,396.7)
19,326.0
18,829.9
1,122.5
1,062.5
Total Property, Plant and Equipment, Net
20,448.5
19,892.4
(1)
These assets are primarily comprised of building improvements, computer software, hardware and equipment at Eversource Service.
Distribution
5,471.5
5,279.1
1,883.8
831.0
5,377.2
5,100.5
1,804.8
812.3
Transmission
3,691.2
2,205.3
972.0
977.9
3,618.0
2,131.3
928.2
964.9
1,182.4
35.9
1,158.1
36.0
9,162.7
7,484.4
4,038.2
1,844.8
8,995.2
7,231.8
3,891.1
1,813.2
(2,089.2)
(1,962.7)
(1,217.3)
(323.0)
(2,041.9)
(1,886.8)
(1,171.0)
(307.0)
7,073.5
5,521.7
2,820.9
1,521.8
6,953.3
5,345.0
2,720.1
1,506.2
263.1
267.0
94.5
203.5
310.5
135.3
69.1
7,336.6
5,788.7
2,925.3
1,616.3
7,156.8
5,655.5
2,855.4
1,575.3
As of June 30, 2016, PSNH had $1.2 billion in gross generation utility plant assets and related Accumulated Depreciation of $542.8 million. These generation assets are the subject of a divestiture agreement whereby PSNH agreed to divest of these generation assets. The NHPUC approved the divestiture agreement on July 1, 2016. The NHPUC is in the process of selecting an auction adviser to assist with the divestiture. 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 through recoveries 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 2:
Level 3:
17.5
(10.8)
6.7
16.7
(10.9)
5.8
16.6
0.9
Long-Term Derivative Assets:
70.1
(14.8)
55.3
62.0
(19.3)
42.7
69.9
55.1
60.7
41.4
0.2
Current Derivative Liabilities:
(5.8)
(93.0)
(92.3)
(91.6)
(91.8)
(1.4)
(0.5)
Long-Term Derivative Liabilities:
(381.6)
(337.1)
(380.6)
(336.2)
(1.0)
(0.9)
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 June 30, 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 7.1 million and 9.1 million MMBtu of natural gas, respectively.
For the three months ended June 30, 2016 and 2015, there were losses of $42.9 million and $36.6 million, respectively, deferred as regulatory costs, which reflect the change in fair value associated with Eversource's derivative contracts. For the six months ended June 30, 2016 and 2015, these losses were $74.4 million and $50.1 million, respectively.
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
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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:
5.50
13.23
per kW-Month
2017 - 2026
10.81
15.82
2016 - 2026
2020 - 2026
12.60
2019 - 2026
8.50
12.11
2017 - 2018
2016 - 2019
Forward Reserve:
Eversource, CL&P
2.00
2016 - 2024
REC Prices:
Eversource, NSTAR Electric
38
42
per REC
2016 - 2018
Exit price premiums of 4 percent through 21 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
(387.7)
(385.1)
(2.6)
(406.8)
(403.3)
(3.5)
Net Realized/Unrealized Gains/(Losses) Included in Regulatory Assets and Liabilities
(46.6)
(46.8)
(37.1)
(36.8)
(0.3)
Settlements
20.6
1.1
21.5
19.9
1.6
Fair Value as of End of Period
(412.6)
(411.3)
(1.3)
(422.4)
(420.2)
(2.2)
(380.9)
(380.8)
(0.1)
(415.4)
(410.9)
(4.5)
Net Realized/Unrealized Losses Included in Regulatory Assets and Liabilities
(76.6)
(72.2)
(4.4)
(49.2)
(48.9)
44.9
41.7
42.2
39.6
2.6
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 June 30, 2016 and December 31, 2015, these securities were classified as Level 1 in the fair value hierarchy and totaled $10.6 million and $14.2 million, respectively. For the three months ended June 30, 2016 and 2015, net gains on these securities of $0.2 million and $0.5 million, respectively, and for the six months ended June 30, 2016 and 2015, net gains of $0.5 million and $2.1 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.
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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
261.0
269.4
256.5
4.5
(0.6)
260.4
Equity Securities
207.8
58.5
(2.3)
264.0
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 $439.5 million and $436.9 million as of June 30, 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 and six months ended June 30, 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 June 30, 2016, the contractual maturities of available-for-sale debt securities were as follows:
Less than one year (1)
27.2
One to five years
61.6
62.4
Six to ten years
45.4
Greater than ten years
126.8
132.6
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
274.6
285.3
Money Market Funds
21.1
26.9
Total Level 1
295.7
U.S. Government Issued Debt Securities (Agency and Treasury)
70.8
Corporate Debt Securities
39.5
43.9
Asset-Backed Debt Securities
18.8
Municipal Bonds
109.9
111.4
Other Fixed Income Securities
9.3
Total Level 2
248.3
233.5
Total Marketable Securities
544.0
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.
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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 June 30, 2016 and December 31, 2015, Eversource parent had $438 million and approximately $1.1 billion, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving $1.0 billion and $351.5 million of available borrowing capacity as of June 30, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of June 30, 2016 and December 31, 2015 was 0.66 percent and 0.72 percent, respectively. As of June 30, 2016, there were intercompany loans from Eversource parent of $93 million to CL&P, $120.9 million to PSNH and $53.7 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 June 30, 2016 and December 31, 2015, NSTAR Electric had $329 million and $62.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $121 million and $387.5 million of available borrowing capacity as of June 30, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of June 30, 2016 and December 31, 2015 was 0.44 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.
Amounts outstanding under the commercial paper programs are included in Notes Payable for Eversource and NSTAR Electric and are classified in current liabilities on the balance sheets as all borrowings are outstanding for no more than 364 days at one time. Intercompany loans from Eversource parent to CL&P, PSNH and WMECO are included in Notes Payable to Eversource Parent and are classified in current liabilities on their respective balance sheets. Intercompany loans from Eversource parent to CL&P, PSNH and WMECO are eliminated in consolidation on Eversource's balance sheets.
Long-Term Debt Issuances: In March 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.
In May 2016, NSTAR Electric issued $250 million of 2.70 percent debentures, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the NSTAR Electric commercial paper program and fund capital expenditures and working capital.
In June 2016, WMECO issued $50 million of 2.75 percent Series H Senior Notes, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings.
Long-Term Debt Repayments: In May 2016, NSTAR Electric repaid at maturity $200 million variable rate debentures, using short-term borrowings.
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 June 30, 2016 was approximately $11.5 million and $2.5 million for the Pension and PBOP plans, respectively, and approximately $23 million and $5 million for the six months ended June 30, 2016, respectively.
On August 5, 2016, the Company amended its PBOP plan. The amendment standardized separate benefit structures that existed within the plan and made other benefit changes. Overall, the plan amendment is expected to reduce the PBOP plan's accumulated projected benefit obligation by approximately $220 million. The PBOP liability will be remeasured as of August 5, 2016, and the PBOP expense for the remainder of 2016 will be recorded using updated assumptions and actuarial calculations.
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
24
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
June 30, 2015(1)
Service Cost
18.7
22.8
37.9
45.9
Interest Cost
46.4
92.8
113.3
Expected Return on Plan Assets
(79.5)
(83.9)
(159.1)
(168.2)
Actuarial Loss
31.3
36.5
63.0
75.5
Prior Service Cost
1.8
Total Net Periodic Benefit Expense
17.8
36.4
68.3
Capitalized Pension Expense
5.4
9.8
11.4
3.1
3.9
6.3
8.1
9.4
11.7
19.0
23.6
(15.7)
(16.9)
(31.5)
(33.7)
1.7
2.1
Prior Service Credit
(0.2)
Total Net Periodic Benefit Expense/(Income)
(4.2)
1.2
Capitalized PBOP Expense/(Income)
(1.9)
For the Three Months Ended June 30, 2016
For the Three Months Ended June 30, 2015
PSNH (1)
2.5
0.8
6.2
3.7
10.2
8.5
5.1
10.0
(18.0)
(9.6)
(19.8)
(17.5)
(10.1)
(4.7)
8.0
2.9
0.4
3.6
0.7
7.7
4.9
0.6
Intercompany Allocations
2.2
2.0
4.7
2.7
0.5
For the Six Months Ended June 30, 2016
For the Six Months Ended June 30, 2015
5.0
12.2
7.5
21.0
16.8
10.3
25.4
20.1
5.2
(36.2)
(33.8)
(8.8)
(39.4)
(35.1)
(20.2)
(9.4)
13.0
17.0
16.2
18.4
8.2
15.2
10.9
6.8
2.3
5.9
25
0.3
3.8
(2.5)
(6.4)
(2.8)
(6.9)
(1.5)
Total Net Periodic Benefit Income
Capitalized PBOP Income
7.8
1.5
9.5
1.9
(5.1)
(12.7)
(1.1)
(5.5)
(13.7)
(3.0)
(0.4)
Amounts excluded approximately $0.8 million and $1.6 million for the three and six months ended June 30, 2015, respectively, 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)
64
51.1
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 $53.7 million and $45.5 million as of June 30, 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.
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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 guaranty will not exceed $206 million and decreases as capital contributions are made. The guaranty will expire upon the earlier of the full performance of the guaranteed obligations or December 31, 2021.
Eversource parent issued a guaranty on behalf of its subsidiary, NPT, under which, beginning at the time the Northern Pass Transmission line goes into commercial operation, Eversource parent will guarantee the financial obligations of NPT under the TSA with HQ in an amount not to exceed $25 million. Eversource parent's obligations under the guaranty expire upon the full, final and indefeasible payment of the guaranteed obligations. Eversource parent has also entered into a guaranty on behalf of NPT under which Eversource parent will guarantee NPT’s obligations under its letter of credit facility with a financial institution pursuant to which NPT may request letters of credit in an aggregate amount of up to approximately $14 million.
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 to external parties, as of June 30, 2016:
Maximum Exposure
Company
Description
Expiration Dates
On behalf of subsidiaries:
Eversource Gas Transmission LLC
Access Northeast Project Capital Contributions Guaranty
187.4
2021
Various
Surety Bonds (1)
35.8
Eversource Service and Rocky River Realty Company
Lease Payments for Vehicles and Real Estate
10.1
2019 - 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 parent 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. The decision became final on July 18, 2016. Management cannot predict the timing or amount of any customer refunds. At this time, the proceeds are primarily expected to be used by the Yankee Companies to fund remaining fuel storage obligations, and management does not expect any significant amounts to be refunded to Eversource utilities (CL&P, NSTAR Electric, PSNH and WMECO). The utilities would then ultimately refund any amounts received to utility customers.
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 (collectively 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 half 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.
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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 by certain municipal utilities claiming the current base ROE of 10.57 percent and the incentive cap of 11.74 percent are unjust and unreasonable. The NETOs answered on June 3, 2016 and requested that FERC dismiss the complaint. At this time FERC has not taken any action with respect to this complaint; therefore 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.
On July 1, 2016, the NHPUC approved the Agreement in an order that, among other things, instructs PSNH to begin the process to divest its generation assets. The NHPUC is in the process of selecting an auction adviser to assist with the divestiture. 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 recoveries in rates billed to PSNH's customers.
If the NHPUC approves the sale of the plants, the Company expects the plants will be sold prior to the end 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.
Eversource and NSTAR Electric Boston Harbor Civil Action
On July 15, 2016, the United States Army Corps of Engineers filed a civil action in the United States District Court for the District of Massachusetts under provisions of the Rivers and Harbors Act of 1899 and the Clean Water Act against NSTAR Electric, Harbor Electric Energy Company, a wholly-owned subsidiary of NSTAR Electric ("HEEC"), and the Massachusetts Water Resources Authority (together with NSTAR Electric and HEEC, the "Defendants"). The action alleges that the Defendants failed to comply with certain permitting requirements relating to the placement of the HEEC-owned electric distribution cable beneath Boston Harbor. The action seeks an order to force HEEC to comply with cable depth requirements in the U.S. Army Corps of Engineers' permit or alternatively to remove the electric distribution cable and cease unauthorized work in U.S. waterways. The action also seeks civil penalties and other costs. Management believes it has valid defenses to the claims and intends to defend it vigorously; concurrently, NSTAR Electric and HEEC are seeking to work collaboratively with all parties for a mutually beneficial resolution. At this time, management is unable to predict the outcome of this action or the impact on Eversource's and NSTAR Electric’s financial position, results of operations, or cash flows.
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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
Preferred Stock Not
Subject to Mandatory Redemption
155.6
157.5
157.9
9,614.8
10,512.0
9,034.5
9,425.9
As of June 30, 2016:
116.2
115.0
43.0
42.5
2,764.9
3,240.4
2,077.7
2,354.3
1,071.5
1,150.8
566.9
617.3
As of December 31, 2015:
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
Hedging
on Marketable
Benefit
Instruments
Securities
Plans
Total
Balance as of Beginning of Period
(10.3)
(54.6)
(66.8)
(12.4)
(62.3)
(74.0)
OCI Before Reclassifications
Amounts Reclassified from AOCI
Net OCI
1.4
Balance as of End of Period
(9.2)
(55.6)
(65.4)
(11.4)
(60.2)
(72.0)
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.
Defined benefit plan OCI amounts before reclassifications relate to actuarial gains and losses that arose during the year and were recognized in AOCI.
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.
29
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
June 30, 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
100
301
1,072,471
434,653
As of both June 30, 2016 and December 31, 2015, there were 16,671,366 Eversource common shares held as treasury shares. As of June 30, 2016 and December 31, 2015, Eversource common shares outstanding were 317,207,036 and 317,191,249, respectively.
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 June 30, 2016 and 2015, and $3.8 million for the six months ended June 30, 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 June 30, 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 and six months ended June 30, 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)
203.6
207.5
447.8
460.8
Dilutive Effect
691,204
946,402
827,557
1,173,374
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' 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.
30
Eversource's segment information is as follows:
Natural Gas
Eliminations
For the Three Months Ended June 30, 2016:
1,303.1
180.4
302.5
211.1
(229.9)
1,767.2
Depreciation and Amortization
(98.4)
(16.8)
(45.6)
(7.5)
(167.8)
Other Operating Expenses
(994.4)
(141.1)
(82.5)
(188.1)
230.1
(1,176.0)
210.3
22.5
174.4
15.5
423.4
(47.6)
(10.4)
(27.4)
(16.6)
(100.5)
5.3
219.0
(222.6)
102.8
92.5
220.7
(220.4)
For the Six Months Ended June 30, 2016:
2,739.2
523.0
585.8
425.3
(450.5)
3,822.8
(226.1)
(32.7)
(90.7)
(14.4)
(362.8)
(2,083.3)
(374.5)
(155.5)
(385.4)
450.7
(2,548.0)
429.8
115.8
339.6
25.5
912.0
(95.6)
(20.5)
(55.3)
(30.7)
(198.7)
7.9
524.4
(528.4)
211.3
58.9
178.2
523.1
(523.7)
Cash Flows Used for Investments in Plant
362.0
349.1
53.1
869.2
For the Three Months Ended June 30, 2015:
1,382.7
186.0
203.7
(223.1)
1,817.1
(98.5)
(17.7)
(39.7)
(7.1)
(162.5)
(1,052.1)
(150.2)
(73.1)
(190.7)
223.5
(1,242.6)
232.1
18.1
155.0
412.0
(9.1)
(26.3)
5.5
220.1
(218.1)
120.9
80.4
217.0
(216.1)
For the Six Months Ended June 30, 2015:
3,142.8
693.4
516.8
443.7
(466.2)
4,330.5
(257.6)
(35.9)
(80.1)
(14.3)
(386.9)
(2,395.0)
(538.7)
(147.2)
(419.9)
466.7
(3,034.1)
490.2
118.8
289.5
909.5
(93.2)
(18.1)
(53.9)
(24.1)
(187.1)
7.6
535.0
(532.2)
18.6
251.4
61.0
147.0
529.9
(528.5)
319.8
67.5
328.7
24.4
740.4
The following table summarizes Eversource's segmented total assets:
17,855.6
3,122.5
8,376.2
13,218.3
(11,689.9)
30,882.7
17,981.3
3,104.5
8,019.3
13,256.7
(11,781.5)
30,580.3
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The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related combined notes included in this combined Quarterly Report on Form 10-Q, the combined quarterly report on Form 10-Q for the quarter ended March 31, 2016, as well as the Eversource 2015 Form 10-K. References in this combined Quarterly Report on Form 10-Q to "Eversource," the "Company," "we," "us," and "our" refer to Eversource Energy and its consolidated subsidiaries. All per share amounts are reported on a diluted basis. The unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH and the unaudited condensed financial statements of CL&P and WMECO are herein collectively referred to as the "financial statements."
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.
The only common equity securities that are publicly traded are common shares of Eversource. The earnings and EPS of each business discussed below do not represent a direct legal interest in the assets and liabilities of such business but rather represent a direct interest in our assets and liabilities as a whole. EPS by business is a financial measure not recognized under GAAP 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 second quarter and first half of 2016 and 2015 earnings and EPS excluding certain integration costs. 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 second quarter and first half of 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 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 $203.6 million, or $0.64 per share, in the second quarter of 2016, and $447.8 million, or $1.41 per share, in the first half of 2016, compared with $207.5 million, or $0.65 per share, in the second quarter of 2015, and $460.8 million, or $1.45 per share, in the first half of 2015.
Our electric distribution segment, which includes generation, earned $102.8 million, or $0.32 per share, in the second quarter of 2016, and $211.3 million, or $0.66 per share, in the first half of 2016, compared with earnings of $120.9 million, or $0.38 per share, in the second quarter of 2015, and $251.4 million, or $0.80 per share, in the first half of 2015.
Our transmission segment earned $92.5 million, or $0.29 per share, in the second quarter of 2016, and $178.2 million, or $0.56 per share, in the first half of 2016, compared with $80.4 million, or $0.25 per share, in the second quarter of 2015, and $147 million, or $0.46 per share, in the first half of 2015.
Our natural gas distribution segment earned $8.0 million, or $0.03 per share, in the second quarter of 2016, and $58.9 million, or $0.19 per share, in the first half of 2016, compared with $5.3 million, or $0.02 per share, in the second quarter of 2015, and $61 million, or $0.19 per share, in the first half of 2015.
Eversource parent and other companies had earnings of $0.3 million in the second quarter of 2016 and a net loss of $0.6 million in the first half of 2016, compared with earnings of $0.9 million in the second quarter of 2015 and $1.4 million in the first half of 2015.
Liquidity:
Cash flows provided by operating activities totaled $978.4 million in the first half of 2016, compared with $865.3 million in the first half of 2015. Investments in property, plant and equipment totaled $869.2 million in the first half of 2016, compared with $740.4 million in the first half of 2015. Cash and cash equivalents totaled $38.7 million as of June 30, 2016, compared with $23.9 million as of December 31, 2015.
In May 2016, NSTAR Electric repaid at maturity $200 million variable rate debentures using short-term borrowings. Also in May 2016, NSTAR Electric issued $250 million of 2.70 percent debentures, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the NSTAR Electric commercial paper program and fund capital expenditures and working capital.
On May 4, 2016, our Board of Trustees approved a common share dividend payment of $0.445 per share, which was paid on June 30, 2016 to shareholders of record as of May 31, 2016.
Strategic, Legislative, Regulatory, Policy and Other Items:
On April 29, 2016, a fourth complaint was filed with the FERC by certain municipal utilities claiming the current base ROE of 10.57 percent and the incentive cap of 11.74 percent are unjust and unreasonable The NETOs answered on June 3, 2016 and requested that FERC dismiss the complaint. At this time FERC has not taken any action with respect to this complaint; therefore, we are unable to predict the outcome of this complaint.
On June 30, 2016, NSTAR Electric and WMECO filed an application with the DPU seeking approval to develop 35 MW and 27 MW, respectively, of solar generation facilities. We expect DPU approval of the application by the end of 2016 and expect to complete development of the facilities by the end of 2017. We estimate our investment in these new facilities will be between approximately $180 million to $200 million if fully approved.
On July 1, 2016, the NHPUC approved the 2015 Public Service Company of New Hampshire Restructuring and Rate Stabilization Agreement in an order that, among other things, instructs PSNH to begin the process to divest its generation assets.
On July 31, 2016, the Massachusetts Legislature passed "An Act to Promote Energy Diversity", which requires electric distribution companies to jointly solicit a request for proposal (RFP) and enter into contracts for offshore wind and for hydropower. The bill is awaiting the governor's signature.
33
Overview
Consolidated: Below is a summary of our earnings by business, which also reconciles the non-GAAP financial measure of EPS by business to the most directly comparable GAAP measure of diluted EPS, for the second quarter and first half of 2016 and 2015. Also included in the summary for the second quarter and first half 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
203.3
207.3
448.4
460.1
Eversource Parent and Other Companies
0.01
0.02
Non-GAAP Earnings
N/A
209.6
0.66
466.9
1.47
Integration Costs (after-tax) (1)
(2.1)
(0.01)
(6.1)
(0.02)
The 2015 integration costs were associated with our branding efforts and severance costs.
Regulated Companies: Our Regulated companies consist of the electric distribution, electric transmission, and natural gas distribution segments. Generation activities of PSNH and WMECO are included in our electric distribution segment. A summary of our segment earnings and EPS for the second quarter and first half of 2016 and 2015 is as follows:
Electric Distribution
0.32
121.6
0.38
252.1
0.80
Electric Transmission
0.29
0.25
0.56
0.46
Natural Gas Distribution
0.03
0.19
Integration Costs (after-tax)
(0.7)
Net Income - Regulated Companies
206.6
459.4
Our electric distribution segment earnings decreased $18.1 million in the second quarter of 2016, as compared to the second quarter of 2015, due primarily to higher operations and maintenance expense, higher depreciation expense and higher property tax expense. These unfavorable earnings impacts were partially offset by increased CL&P distribution revenues primarily as a result of higher rate base.
Our electric distribution segment earnings decreased $40.1 million in the first half of 2016, as compared to the first half of 2015, due primarily to the absence in 2016 of the resolution of NSTAR Electric's basic service bad debt adder mechanism recorded in the first quarter of 2015 ($14.5 million), the absence in 2016 of the favorable impact associated with the NSTAR Electric and NSTAR Gas Comprehensive Settlement Agreement recorded in the first quarter of 2015 ($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 increased CL&P distribution revenues primarily as a result of higher rate base.
Our electric transmission segment earnings increased $12.1 million in the second quarter of 2016, as compared to the second quarter of 2015, due primarily to a higher transmission rate base as a result of increased investments in our transmission infrastructure.
Our electric transmission segment earnings increased $31.2 million in the first half of 2016, as compared to the first half 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 increased investments in our transmission infrastructure.
Our natural gas distribution segment earnings increased $2.7 million in the second quarter of 2016, as compared to the second quarter of 2015, due primarily to the impact of the NSTAR Gas base distribution rate increase effective January 1, 2016 and higher non-decoupled firm natural gas sales volumes driven by the cooler than normal weather in the spring of 2016, as compared to the same period in 2015. These favorable earnings impacts were partially offset by higher operations and maintenance expense and higher property tax expense.
Our natural gas distribution segment earnings decreased $2.1 million in the first half of 2016, as compared to the first half of 2015, due primarily to lower non-decoupled 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 expense and the impact of the NSTAR Gas base distribution rate increase effective January 1, 2016.
34
Eversource Parent and Other Companies: Eversource parent and other companies had earnings of $0.3 million in the second quarter of 2016 and a net loss of $0.6 million in the first half of 2016, compared with earnings of $0.9 million and $1.4 million in the second quarter and first half of 2015, respectively. The earnings decrease in the first half of 2016 was due primarily to a higher effective tax rate and higher interest expense, partially offset by the absence in 2016 of integration costs.
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 (Mcf) and percentage changes is as follows:
For the Three Months Ended June 30, 2016 Compared to 2015
For the Six Months Ended June 30, 2016 Compared to 2015
Sales Volumes (GWh)
Percentage
Increase/(Decrease)
Decrease
Traditional:
Residential
2,092
2,127
(1.6)%
4,497
4,874
(7.7)%
Commercial
3,861
3,892
(0.8)%
7,852
8,032
(2.2)%
Industrial
652
(0.1)%
1,252
1,266
(1.2)%
Total – Traditional
6,605
6,671
(1.0)%
13,601
14,172
(4.0)%
Decoupled:
2,410
2,393
0.7 %
5,353
5,863
(8.7)%
2,658
2,702
5,275
5,494
730
753
(3.0)%
1,394
1,439
(3.1)%
Total – Decoupled
5,798
5,848
12,022
12,796
(6.0)%
Total Sales Volumes
12,403
12,519
(0.9)%
25,623
26,968
(5.0)%
Sales Volumes (Mcf)
Firm Natural Gas
(Decrease)/Increase
2,511
2,081
20.7 %
9,153
11,068
(17.3)%
3,538
3,299
7.2 %
11,514
13,268
(13.2)%
2,266
2,443
(7.2)%
5,633
6,570
(14.3)%
8,315
7,823
6.3 %
26,300
30,906
(14.9)%
3,231
3,079
4.9 %
12,540
15,547
(19.3)%
3,884
3,583
8.4 %
12,872
14,937
(13.8)%
1,319
1,217
8.3 %
3,173
3,693
(14.1)%
8,434
7,879
7.0 %
28,585
34,177
(16.4)%
Special Contracts (1)
1,087
1,079
2,299
2,270
1.3 %
Total – Decoupled and Special Contracts
9,521
8,958
30,884
36,447
(15.3)%
17,836
16,781
57,184
67,353
(15.1)%
Special contracts are unique to the natural gas distribution customers who take service under such an arrangement and generally specify the amount of distribution revenue to be paid to Yankee Gas regardless of the customers' usage.
For the second quarter of 2016, retail electric sales volumes at our electric utilities with a traditional rate structure (NSTAR Electric and PSNH) remained relatively unchanged, as compared to the second quarter of 2015. For the first half of 2016, retail electric sales volumes at our electric utilities with a traditional rate structure were lower, as compared to the first half 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 half 2016 heating degree days were 19.2 percent lower in the Boston metropolitan area and 18.6 percent lower in New Hampshire, as compared to the same period in 2015.
35
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 $13.8 million and $26.8 million in the second quarter and first half of 2016, respectively, compared to $15.2 million and $27.7 million in the second quarter and first half of 2015, respectively.
Our firm natural gas sales volumes are subject to many of the same influences as our retail electric sales volumes. In addition, they have benefited from customer growth in both of our natural gas distribution companies. Fluctuations in natural gas sales volumes in Massachusetts do not impact earnings due to the DPU-approved natural gas distribution revenue decoupling mechanism approved in the last rate case decision. Natural gas distribution revenues are decoupled from their customer sales volumes, where applicable, which breaks the relationship between sales volumes and revenues recognized. In the second quarter of 2016, our consolidated firm natural gas sales volumes were higher, as compared to the second quarter of 2015, due primarily to cooler temperatures as well as customer growth, partially offset by customer conservation efforts resulting from company-sponsored energy efficiency programs. Consolidated firm natural gas sales volumes were much lower in the first half of 2016, as compared to the first half of 2015. The first half of 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 half 2016 heating degree days were 17.4 percent lower in Connecticut, as compared to the same period in 2015.
Liquidity
Consolidated: Cash and cash equivalents totaled $38.7 million as of June 30, 2016, compared with $23.9 million as of December 31, 2015.
Long-Term Debt Issuances and Repayments: In May 2016, NSTAR Electric repaid at maturity $200 million variable rate debentures using short-term borrowings. Also in May 2016, NSTAR Electric issued $250 million of 2.70 percent debentures, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the NSTAR Electric commercial paper program and fund capital expenditures and working capital. In June 2016, WMECO issued $50 million of 2.75 percent Series H Senior Notes, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings.
Commercial Paper Programs and Credit Agreements: Eversource parent has a $1.45 billion commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt. As of June 30, 2016 and December 31, 2015, Eversource parent had $438 million and approximately $1.1 billion, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving $1.0 billion and $351.5 million of available borrowing capacity as of June 30, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of June 30, 2016 and December 31, 2015 was 0.66 percent and 0.72 percent, respectively. As of June 30, 2016, there were intercompany loans from Eversource parent of $93 million to CL&P, $120.9 million to PSNH, and $53.7 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 June 30, 2016 and December 31, 2015, NSTAR Electric had $329 million and $62.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $121 million and $387.5 million of available borrowing capacity as of June 30, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of June 30, 2016 and December 31, 2015 was 0.44 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.
Cash Flows: Cash flows provided by operating activities totaled $978.4 million in the first half of 2016, compared with $865.3 million in the first half of 2015. The increase in operating cash flows was due primarily to timing of collections related to accounts receivable and the timing of payments related to accounts payable. Also contributing to the increase was an increase in regulatory recoveries, primarily at NSTAR Electric, due to collections from customers in excess of purchased power costs, as well as an increase of $67.8 million in income tax refunds received in the first half of 2016, as compared to the first half of 2015. Partially offsetting these favorable cash flow impacts were an increase of $34.9 million in Pension and PBOP Plan cash contributions in the first half of 2016, as compared to the same period in 2015, and an increase in fuel inventory balances at PSNH.
Credit Ratings: On May 26, 2016, Moody’s upgraded WMECO’s corporate credit rating and senior unsecured debt credit rating by one level and changed the outlook from positive to stable. On July 6, 2016, Fitch upgraded the corporate credit ratings by one level and changed the outlooks to stable from positive for CL&P, PSNH and WMECO. Also on July 6, 2016, Fitch changed the outlook on Eversource parent from stable to positive. On July 12, 2016, S&P changed its outlook on Eversource and its subsidiaries from stable to positive. On July 19, 2016, Moody’s upgraded PSNH’s corporate credit rating by one level and changed the outlook from positive to stable.
A summary of our corporate credit ratings and outlooks by Moody's, S&P and Fitch is as follows:
Current
Outlook
Eversource Parent
Baa1
Stable
A
Positive
BBB+
A-
A2
A3
A summary of the current credit ratings and outlooks by Moody's, S&P and Fitch for senior unsecured debt of Eversource parent, NSTAR Electric, and WMECO and senior secured debt of CL&P and PSNH is as follows:
A+
A1
On May 4, 2016, our Board of Trustees approved a common share dividend payment of $0.445 per share, which was paid on June 30, 2016 to shareholders of record as of May 31, 2016. In the first half of 2016, we paid cash dividends on common shares of $282.3 million, compared with $264.9 million in the first half of 2015.
In the first half of 2016, CL&P, NSTAR Electric, PSNH, and WMECO paid $99.8 million, $278.3 million, $38.8 million, and $19 million, respectively, in common stock dividends to Eversource parent.
Investments in Property, Plant and Equipment on the statements of cash flows do not include amounts incurred on capital projects but not yet paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense. In the first half of 2016, investments for Eversource, CL&P, NSTAR Electric, PSNH, and WMECO were $869.2 million, $288.6 million, $199.8 million, $138.7 million, and $71.5 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 $905.0 million in the first half of 2016, compared to $770.9 million in the first half of 2015. These amounts included $58.0 million and $28.5 million in the first half 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. For further information on the natural gas pipeline capacity RFP process and Access Northeast’s participation, see "Regulatory Developments and Rate Matters – General – New England Natural Gas Pipeline Capacity" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Electric Transmission Business: Our consolidated electric transmission business capital expenditures increased by $37.2 million in the first half of 2016, as compared to the first half of 2015. A summary of electric transmission capital expenditures by company is as follows:
140.9
99.1
107.6
86.8
50.4
70.2
46.1
49.2
16.0
Total Electric Transmission Segment
361.0
323.8
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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. Six projects have been placed in service and during the remainder of 2016, 12 additional projects are expected to be in active construction. All GHCC projects are expected to be completed by late 2018. As of June 30, 2016, CL&P had capitalized $79.9 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. The DOE completed the comment period on the draft EIS on April 4, 2016, and is expected to issue the final EIS in the first quarter of 2017. On August 18, 2015, NPT announced the Forward NH Plan, including 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.
On June 10, 2016, Northern Pass executed a settlement agreement with the NHPUC Staff regarding its application to operate as a public utility once the project is fully permitted. The settlement agreement is subject to NHPUC approval. Additionally, on June 28, 2016, as part of the Forward NH Plan, PSNH filed a power purchase agreement (PPA) with the NHPUC. The PPA, combined with the Forward New Hampshire Plan, is expected to deliver over $1 billion of energy cost savings and other benefits over the contract term to New Hampshire customers. The Forward NH Plan and the PPA are both commitments that are contingent upon the Northern Pass transmission line going into commercial operation.
The New Hampshire Site Evaluation Committee (NH SEC) is currently in process of formal siting. The NH SEC is expected to issue an order on NPT no later than September 2017 and the project is expected to be operational by the end of 2019. On January 28, 2016, NPT bid into the three-state Clean Energy 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 Condition 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, of which 31 are in Eversource’s service territory. 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 the third quarter of 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 $565 million, of which approximately $78.2 million has been capitalized through June 30, 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. In June 2016, the NH SEC accepted our application as complete and we expect the NH SEC decision by mid-2017. This project is expected to be completed by the end of 2018. We estimate our investment in this project will be approximately $77 million, of which approximately $9.5 million has been capitalized through June 30, 2016.
Distribution Business: A summary of distribution capital expenditures is as follows:
CL&P:
Basic Business
84.1
62.9
Aging Infrastructure
62.3
75.7
Load Growth
16.9
Total CL&P
163.3
157.1
NSTAR Electric:
54.6
54.0
35.6
34.7
26.2
Total NSTAR Electric
116.4
102.7
PSNH:
32.2
39.4
21.2
Total PSNH
77.0
57.4
WMECO:
7.3
9.2
Total WMECO
17.2
20.2
Total - Electric Distribution (excluding Generation)
373.9
337.4
PSNH Generation
Natural Gas:
35.2
24.0
59.9
34.4
14.3
14.1
Total – Natural Gas Distribution
109.4
72.5
Total Electric and Natural Gas Distribution Segment
486.0
418.6
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.
FERC Regulatory Matters
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 half 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.
39
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 by certain municipal utilities claiming the current base ROE of 10.57 percent and the incentive cap of 11.74 percent are unjust and unreasonable. The NETOs answered on June 3, 2016 and requested that FERC dismiss the complaint. At this time FERC has not taken any action with respect to this complaint; therefore, we are unable to predict the outcome of this complaint.
Merger Cost Filing: On February 26, 2016, Eversource Energy Service Company filed an application with the FERC to recover through transmission rates approximately $37.4 million of costs associated with the merger of Northeast Utilities and NSTAR. On May 3, 2016, FERC issued an order allowing the Company to recover these transmission related merger costs over a three year period, beginning June 1, 2016, subject to refund, and setting the application for settlement and hearing.
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 NSTAR Electric and WMECO, issued an RFP 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 was expected to be completed in July 2016. Due to the volume of the proposals received and the complexity of the related analysis, the Evaluation Committee has delayed selection of the winning contracts. At this time it is unknown when the selection of the contracts will be completed by the Evaluation Committee. Final results of the RFP will be announced when the EDCs executed contracts are submitted for approval to their respective state regulatory commissions.
New England Natural Gas Pipeline Capacity: NSTAR Electric, WMECO and National Grid have filed with the DPU seeking approval of contracts, including contracts with Access Northeast, for natural gas pipeline capacity and storage. PSNH has filed with the NHPUC, seeking approval of its contract with Access Northeast for natural gas pipeline capacity and storage. On June 2, 2016, the DEEP issued an RFP for natural gas pipeline capacity and storage. Proposals were received on June 29, 2016. Contracts with proposals selected by DEEP are scheduled to be submitted to PURA no later than October 31, 2016 with approval expected no later than January 31, 2017. On June 30, 2016, National Grid filed with the Rhode Island Public Utilities Commission seeking approval of its contract with Access Northeast for natural gas pipeline capacity and storage. On July 19, 2016, the Maine PUC voted to move forward with an Access Northeast contract for natural gas pipeline capacity, contingent upon the participation by electric distribution companies in other New England states. For further information on Access Northeast, see "Business Development and Capital Expenditures –– Natural Gas Transmission Business" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Electric and Natural Gas Base Distribution Rates:
The Regulated companies' distribution rates are set by their respective state regulatory commissions, and their tariffs include mechanisms for periodically adjusting their rates for the recovery of specific incurred costs. Other than as described below, for the first half of 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.
Massachusetts:
Solar Generation: On June 30, 2016, NSTAR Electric and WMECO filed an application with the DPU seeking approval to develop 35 MW and 27 MW, respectively, of solar generation facilities, in addition to WMECO’s existing 8 MW of solar generation facilities. The DPU is expected to issue a decision on the application by the end of 2016, and we expect development of the facilities to be completed by the end of 2017. We estimate our investment in these new facilities will be between approximately $180 million to $200 million if fully approved.
July 2016 Storm Filing: On July 6, 2016, NSTAR Electric filed with the DPU a final accounting of incremental, storm-related preparation and response costs totaling approximately $109 million for eight storms that occurred between 2012 through 2015. In the filing, NSTAR Electric requested that the DPU investigate the storm-related costs and render a determination as to the final storm-related costs eligible for recovery. Recovery of these costs would occur in accordance with a DPU decision in NSTAR Electric's next distribution rate case.
40
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.
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. For further information, see "Regulatory Developments and Rate Matters – Massachusetts – Solar Generation" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
On July 31, 2016, in conjunction with efforts to shape comprehensive energy legislation, the Massachusetts Legislature passed "An Act to Promote Energy Diversity", which requires electric distribution companies to jointly solicit RFPs and enter into 15- to 20-year contracts for 1,600 MW of offshore wind and 1,200 MW of hydropower or other renewable sources, such as land-based wind or solar. The bill is awaiting the governor's signature.
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.
41
RESULTS OF OPERATIONS – EVERSOURCE ENERGY AND SUBSIDIARIES
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for Eversource for the three and six months ended June 30, 2016 and 2015 included in this combined Quarterly Report on Form 10-Q:
Increase/
(Decrease)
Percent
(49.9)
(2.7)
%
(507.7)
(11.7)
581.3
685.1
(103.8)
(15.2)
1,336.1
1,847.2
(511.1)
(27.7)
320.7
4.0
640.9
650.0
176.5
163.7
12.8
350.5
327.5
23.0
7.0
(8.7)
(1.2)
(a)
12.3
59.4
(47.1)
(79.3)
119.7
101.9
256.8
248.5
8.3
154.3
138.9
15.4
314.2
288.4
25.8
1,343.8
1,405.1
(61.3)
2,910.8
3,421.0
(510.2)
(14.9)
100.5
92.3
198.7
187.1
(4.9)
(37.7)
(46.5)
331.0
332.7
(1.7)
723.3
741.1
(17.8)
(2.4)
125.5
123.3
271.7
276.5
(4.8)
209.4
(3.9)
451.6
464.6
(13.0)
(79.6)
(403.6)
(12.8)
(5.6)
(170.4)
(24.6)
69.0
13.4
Other and Eliminations
(18.8)
(19.4)
(3.1)
(25.2)
(22.5)
12.0
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 Mcf were as follows:
Traditional
(66)
(571)
(4.0)
Decoupled
(50)
(0.8)
(774)
(6.0)
Total Electric
(116)
(1,345)
(5.0)
492
(4,606)
Decoupled and Special Contracts
563
(5,563)
(15.3)
Total Firm Natural Gas
1,055
(10,169)
(15.1)
Three Months Ended:
Operating Revenues, which primarily consist of base electric and natural gas distribution revenues and tracked revenues further described below, decreased by $49.9 million for the three months ended June 30, 2016, as compared to the same period in 2015.
Base electric and natural gas distribution revenues: Base electric distribution segment revenues increased $4.7 million due primarily to a higher rate base resulting from the 2015 PURA ADIT settlement agreement that is being collected from customers in distribution rates at CL&P ($4 million) and the absence of an authorized ROE reduction, as stipulated in the PURA 2014 rate case decision, recorded in the second quarter of 2015 at CL&P ($1.1 million). Partially offsetting this increase was the impact of increased customer energy conservation efforts, including those resulting from company-sponsored energy efficiency programs experienced in the second quarter of 2016, as compared to the second quarter of 2015, resulting in a 1 percent decrease in traditional retail sales volumes at NSTAR Electric and PSNH ($0.4 million).
Firm natural gas base distribution segment revenues increased $7.1 million due primarily to a 6.3 percent increase in traditional firm natural gas sales volumes and 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 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 ($142.7 million), driven by decreased average retail rates and lower sales volumes, partially offset by an increase in retail electric transmission charges ($23 million), an increase in energy efficiency program revenues ($20.8 million), an increase in federally mandated congestion charges ($18.5 million), and an increase in net metering for distributed generation revenues ($7.8 million). In addition, CL&P's system benefits charge revenues increased by $5.2 million, which impacted earnings as a result of a higher rate base.
The second quarter 2016 tracked natural gas distribution segment revenues decreased as a result of decreases in natural gas supply costs ($7.2 million) and a decrease in energy efficiency program revenues ($5.3 million).
Electric transmission revenues: The electric transmission segment revenues increased by $34.7 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Six Months Ended:
Operating Revenues decreased by $507.7 million for the six months ended June 30, 2016, as compared to the same period in 2015.
Base electric and natural gas distribution revenues: Base electric distribution segment revenues decreased $2.2 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, as well as increased customer energy conservation efforts, including those resulting from company-sponsored energy efficiency programs, were the primary drivers of a 4 percent decrease in traditional retail sales volumes at NSTAR Electric and PSNH during the first half of 2016 ($15.1 million). The decrease in base electric distribution revenues was partially offset by a higher rate base resulting from the 2015 PURA ADIT settlement agreement that is being collected from customers in distribution rates at CL&P ($10.7 million) and the absence of an authorized ROE reduction, as stipulated in the PURA 2014 rate case decision, recorded in the first half of 2015 at CL&P ($2.2 million).
Also contributing to the decrease in operating revenues in the first half 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.
Firm natural gas base distribution segment revenues decreased $9.7 million due primarily to a 14.9 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.
Tracked distribution revenues: Tracked electric distribution segment revenues decreased as a result of decreases in energy supply costs ($510 million), driven by decreased average retail rates and lower sales volumes, partially offset by an increase in retail electric transmission charges ($37.8 million), an increase in federally mandated congestion charges ($29.9 million), an increase in energy efficiency program revenues ($27.8 million), and an increase in net metering for distributed generation revenues ($15 million). In addition, CL&P's system benefits charge revenues increased by $9.3 million, which impacted earnings as a result of a higher rate base. Tracked natural gas distribution segment revenues decreased as a result of decreases in natural gas supply costs ($137.7 million) driven by decreased average rates and lower sales volumes, and a decrease in energy efficiency program revenues ($23 million).
Electric transmission revenues: The electric transmission segment revenues increased by $69 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 $20 million reserve charge recorded in the first quarter of 2015 associated with the March 2015 FERC ROE order.
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 for the three and six months ended June 30, 2016, as compared to the same periods in 2015, due primarily to the following:
Three Months Ended
Six Months Ended
(144.3)
(452.8)
(8.0)
(135.9)
48.5
77.6
Total Purchased Power, Fuel and Transmission
The decrease in purchased power expense at the electric distribution business was driven by lower prices associated with the procurement of energy supply and lower sales volumes, as well as a decrease in the amount of electricity generated by PSNH facilities. The decrease in purchased power expense at the natural gas distribution business was due to lower average natural gas prices and lower sales volumes. The increase in transmission costs was primarily the result of an increase in the RNS costs billed by ISO-NE.
43
Operations and Maintenance expense includes tracked costs and costs that are part of base electric and natural gas distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended June 30, 2016 and decreased for the six months ended June 30, 2016, as compared to the same periods 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
Storm restoration costs
Vegetation management costs
Absence of 2015 contribution to create clean energy fund in connection with the generation divestiture agreement at PSNH
Employee-related expenses, including labor and benefits
(5.3)
Other operations and maintenance
Total Base Electric Distribution
25.9
Total Base Natural Gas Distribution:
(1.6)
(11.8)
Total Base Natural Gas Distribution
(8.9)
Total Tracked costs (Electric Distribution, Electric Transmission and Natural Gas Distribution)
4.3
Other and eliminations:
Integration costs
(10.5)
Absence of Eversource's unregulated electrical contracting business due to sale in April 2015, net
(10.6)
(8.2)
(9.3)
Total Operations and Maintenance
Depreciation expense increased for the three and six months ended June 30, 2016, as compared to the same periods in 2015, due primarily to higher utility plant in service balances.
Amortization of Regulatory (Liabilities)/Assets, Net expense (the costs of which are tracked) 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 (Liabilities)/Assets, Net, decreased for the three and six months ended June 30, 2016, as compared to the same periods in 2015, due primarily to the deferral of energy supply and energy-related costs which can fluctuate from period to period based on the timing of costs incurred and the related rate changes to recover these costs. Energy supply and energy-related costs at CL&P, NSTAR Electric, PSNH and WMECO, which are the primary drivers in amortization, are recovered from customers in rates and have no impact on earnings.
Partially offsetting the decrease in Amortization of Regulatory (Liabilities)/Assets, Net, for the six months ended June 30, 2016 was the absence in 2016 of the $11.7 million benefit recorded in the first quarter of 2015 at NSTAR Electric in connection with the Comprehensive Settlement Agreement associated with the CPSL program filings.
Energy Efficiency Programs expense (the costs of which are tracked) increased for the three and six months ended June 30, 2016, as compared to the same periods in 2015, due primarily to deferral adjustments at CL&P, NSTAR Electric and the natural gas businesses, which reflect the actual costs of energy efficiency programs compared to the estimated amounts billed to customers, and an increase in energy efficiency costs incurred in accordance with the three-year program guidelines established by the DPU. The deferrals adjust expense to match the energy efficiency programs revenue. The costs for various state energy policy initiatives and expanded energy efficiency programs are recovered from customers in rates and have no impact on earnings.
Taxes Other Than Income Taxes expense increased for the three and six months ended June 30, 2016, as compared to the same periods in 2015, due primarily to an increase in property taxes as a result of higher utility plant balances and an increase in gross earnings taxes (the costs of which are tracked).
Interest Expense increased for the three months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher interest on long-term debt ($9.6 million) as a result of new debt issuances, partially offset by lower interest on regulatory deferral mechanisms ($1.8 million).
Interest Expense increased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher interest on long-term debt ($16.2 million) as a result of new debt issuances, partially offset by lower interest on regulatory deferral mechanisms ($5.1million).
Other Income, Net decreased for the three months ended June 30, 2016, as compared to the same period in 2015, due primarily to a decrease in net gains related to the deferred compensation plans ($6.6 million), partially offset by higher AFUDC related to equity funds ($2.3 million).
Other Income, Net decreased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to a decrease in net gains related to the deferred compensation plans ($10.2 million), partially offset by higher AFUDC related to equity funds ($2.9 million).
44
Income Tax Expense increased for the three months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher state taxes ($1.1 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($1.5 million), partially offset by lower pre-tax earnings ($0.6 million).
Income Tax Expense decreased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to lower pre-tax earnings ($5.3 million) and the excess tax benefit due to the adoption of new accounting guidance related to share-based payment transactions ($2.7 million), partially offset by higher state taxes ($1.8 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($1.5 million).
RESULTS OF OPERATIONS – THE CONNECTICUT LIGHT AND POWER COMPANY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for CL&P for the three and six months ended June 30, 2016 and 2015 included in this combined Quarterly Report on Form 10-Q:
679.8
666.6
13.2
1,415.1
1,471.5
(56.4)
(3.8)
234.5
253.2
(18.7)
(7.4)
507.1
586.8
(79.7)
(13.6)
122.5
118.7
233.4
236.0
57.5
52.2
114.5
105.1
(2.9)
40.8
(33.9)
(83.1)
35.5
33.9
73.6
76.8
(3.2)
70.6
62.1
146.0
130.2
15.8
517.7
512.6
1,081.5
1,175.7
(94.2)
162.1
154.0
333.6
295.8
37.8
36.1
72.7
7.2
16.1
132.4
121.9
10.5
8.6
229.3
39.0
49.5
43.1
6.4
14.8
98.4
81.3
17.1
82.9
78.8
4.1
169.9
148.0
21.9
CL&P's retail sales volumes were as follows:
Retail Sales Volumes in GWh
4,966
5,027
(61)
10,316
11,021
(705)
CL&P's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by $13.2 million for the three months ended June 30, 2016, as compared to the same period in 2015.
Base distribution revenues increased by $5.1 million due to a higher rate base resulting from the 2015 PURA ADIT settlement agreement that is being collected from customers in distribution rates ($4 million) and the absence of an authorized ROE reduction, as stipulated in the PURA 2014 rate case decision, recorded in the second 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. The revenue decoupling mechanism results in the recovery of approved base distribution revenue requirements.
Fluctuations in the overall level of operating revenues are primarily related to tracked revenues. Tracked revenues consist of certain costs that are recovered from customers in rates through PURA-approved cost tracking mechanisms and therefore have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply procurement and other energy-related costs, retail transmission charges, energy efficiency program costs and restructuring and stranded cost recovery revenues. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($39.2 million) driven by decreased average retail rates. Partially offsetting this decrease was an increase in federally mandated congestion charges ($18.5 million) and an increase in competitive transition assessment charges ($7.9 million). In addition, system benefits charge revenues increased by $5.2 million, which impacted earnings as a result of a higher rate base.
Transmission revenues increased by $20.8 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
CL&P's Operating Revenues decreased by $56.4 million for the six months ended June 30, 2016, as compared to the same period in 2015.
Base distribution revenues increased by $12.9 million due to a higher rate base resulting from the 2015 PURA ADIT settlement agreement that is being collected from customers in distribution rates ($10.7 million) and the absence of an authorized ROE reduction, as stipulated in the PURA 2014 rate case decision, recorded in the first half of 2015 ($2.2 million).
Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($160 million) driven by decreased average retail rates and lower sales volumes. Partially offsetting this decrease was an increase in retail transmission charges ($17.8 million), an increase in federally mandated congestion charges ($29.9 million) and an increase in competitive transition assessment charges ($14.3 million). In addition, system benefits charge revenues increased by $9.3 million, which impacted earnings as a result of a higher rate base.
Transmission revenues increased by $36.2 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure and 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.
Purchased Power and Transmission expense includes costs associated with purchasing electricity on behalf of CL&P's customers. These energy supply costs are recovered from customers in PURA-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense decreased for the three and six months ended June 30 2016, as compared to the same periods in 2015, due primarily to the following:
Purchased Power Costs
(38.6)
(112.7)
Transmission Costs
33.0
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 for both the three and six months ended June 30, 2016, compared to the same periods in June 30, 2015, and lower sales volumes for the six months ended June 30, 2016, compared to the same period in June 30, 2015. 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 for the three months ended June 30, 2016, as compared to the same period in 2015, driven by a $3.8 million increase in non-tracked costs, which was primarily attributable to higher storm restoration costs and higher employee-related expenses, partially offset by reimbursement of legal fees in the second quarter of 2016 and the absence in 2016 of integration costs recorded in the second quarter of 2015. Tracked costs, which have no earnings impact, were unchanged.
Operations and Maintenance expense decreased for the six months ended June 30, 2016, as compared to the same period in 2015, driven by a $2.8 million decrease in non-tracked costs, which was primarily attributable to lower operational vehicle costs, reimbursement of legal fees in the second quarter of 2016, and the absence in 2016 of integration costs recorded in the second quarter of 2015, partially offset by higher storm restoration costs. Tracked costs, which have no earnings impact, increased $0.2 million that was primarily attributable to higher transmission expenses offset by lower bad debt expense.
Amortization of Regulatory (Liabilities)/Assets, Net expense (the costs of which are tracked) includes the deferral of energy supply and energy-related costs and the amortization of storm and other costs. Amortization of Regulatory (Liabilities)/Assets, Net increased for the three months ended June 30, 2016 and decreased for the six months ended June 30, 2016, as compared to the same periods 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 expense (the costs of which are tracked) increased for the three months ended June 30, 2016 and decreased for the six months ended June 30, 2016, as compared to the same periods 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. CL&P is allowed to recover its costs for state energy policy initiatives and expanded energy efficiency programs.
Income Tax Expense increased for the three months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher pre-tax earnings ($3.7 million), higher state taxes ($0.7 million), and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($2 million).
Income Tax Expense increased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher pre-tax earnings ($13.7 million), higher state taxes ($1.8 million), and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($2.6 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).
47
EARNINGS SUMMARY
CL&P's earnings increased $4.1 million for the three months ended June 30, 2016, as compared to the same period in 2015, due primarily to an increase in transmission earnings driven by a higher transmission rate base, and higher distribution revenues as a result of higher rate base, and the absence of an authorized ROE reduction, as stipulated in the PURA 2014 rate case decision. These favorable earnings impacts were partially offset by higher operations and maintenance expense, higher property taxes and a higher effective tax rate.
CL&P's earnings increased $21.9 million for the six months ended June 30, 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, and higher distribution revenues as a result of higher rate base, and the absence of an authorized ROE reduction, as stipulated in the PURA 2014 rate case decision. These favorable earnings impacts were partially offset by higher property taxes and higher depreciation expense.
LIQUIDITY
Cash totaled $9.4 million as of June 30, 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 June 30, 2016 and December 31, 2015 was 0.66 percent and 0.72 percent, respectively. As of June 30, 2016 and December 31, 2015, there were intercompany loans from Eversource parent to CL&P of $93 million and $277.4 million, respectively.
CL&P had cash flows provided by operating activities of $429.4 million in the first half of 2016, as compared to $270 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 $48.7 million in income tax refunds received in the first half 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 $288.6 million in the first half of 2016.
Financing activities included $99.8 million in common stock dividends paid to Eversource parent in the first half of 2016.
48
RESULTS OF OPERATIONS – NSTAR ELECTRIC COMPANY AND SUBSIDIARY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for NSTAR Electric for the six months ended June 30, 2016 and 2015 included in this combined Quarterly Report on Form 10-Q:
1,205.5
1,384.0
(178.5)
(12.9)
473.5
685.0
(211.5)
(30.9)
183.7
145.3
38.4
26.4
104.5
97.7
21.6
128.1
97.2
30.9
66.7
60.8
9.7
965.2
1,073.1
(107.9)
240.3
310.9
(70.6)
(22.7)
41.1
38.2
201.7
275.8
(74.1)
(26.9)
79.0
110.3
(31.3)
(28.4)
122.7
165.5
(42.8)
(25.9)
NSTAR Electric's retail sales volumes were as follows:
9,781
10,261
(480)
NSTAR Electric's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $178.5 million for the six months ended June 30, 2016, as compared to the same period in 2015.
Base distribution revenues: Base distribution revenues, excluding LBR, decreased $14.2 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, as well as increased customer energy conservation efforts, including those resulting from company-sponsored energy efficiency programs, were the primary drivers of a 4.7 percent decrease in sales volumes during the first half of 2016. 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 half 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 ($250.6 million) driven by decreased average retail rates and lower sales volumes. Partially offsetting this decrease was an increase in cost recovery related to energy efficiency programs ($31.3 million), an increase in retail transmission charges ($27.3 million) and an increase in net metering revenues ($13.3 million).
Transmission revenues increased by $12.6 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 for the six months ended June 30 2016, as compared to the same period in 2015, due primarily to the following:
(249.7)
Included in purchased power costs are the costs associated with NSTAR Electric's basic service charge and deferred energy supply costs. The basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs was due primarily to lower prices associated with the procurement of energy supply and lower sales volumes. The 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 for the six months ended June 30, 2016, as compared to the same period in 2015, driven by a $34.3 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 recorded in the first quarter of 2015 ($24.2 million), higher vegetation management expense and higher storm restoration costs. Additionally, there was a $4.1 million increase in tracked costs, which have no earnings impact, that was primarily attributable to higher employee-related expenses and higher bad debt expense.
Depreciation expense increased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher utility plant in service balances.
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, and the deferral adjustment of certain costs that exceeded billed revenues for the six months ended June 30, 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 expense (the costs of which are tracked) increased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to the deferral adjustment, which reflects the actual costs billed to energy efficiency programs compared to the amount billed to customers and an increase in energy efficiency costs incurred in accordance with the three-year program guidelines established by the DPU. The deferral adjusts expense to match the energy efficiency programs revenue.
Taxes Other Than Income Taxes expense increased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to an increase in property taxes as a result of higher utility plant balances.
Interest Expense increased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher interest on long-term debt ($4.7 million) as a result of new debt issuances, partially offset by lower interest on regulatory deferral mechanisms ($1.6 million).
Income Tax Expense decreased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to lower pre-tax earnings ($26 million), lower state taxes ($4 million), the excess tax benefit due to the adoption of new accounting guidance related to share-based payment transactions ($0.9 million), and various other items ($0.4 million).
NSTAR Electric's earnings decreased $42.8 million for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to the absence in 2016 of both the 2015 resolution of the basic service bad debt adder mechanism ($14.5 million) and the 2015 favorable impact associated with the Comprehensive Settlement Agreement ($13 million), lower retail sales volumes, higher operations and maintenance expense 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 $165.1 million in the first half of 2016, as compared to $207.6 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 receivables and accounts payable. In addition, there was a $36.6 million reduction in income tax refunds received in the first half 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 half of 2016, as compared to the same period in 2015. Partially offsetting these unfavorable impacts was the timing of regulatory recoveries resulting primarily from the decrease in purchased power costs and energy efficiency programs.
50
RESULTS OF OPERATIONS – PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for PSNH for the six months ended June 30, 2016 and 2015 included in this combined Quarterly Report on Form 10-Q:
526.7
(65.9)
(12.5)
95.9
147.5
(51.6)
(35.0)
123.0
134.9
(11.9)
51.4
10.7
(98.9)
7.1
44.0
41.3
6.5
327.0
409.4
(82.4)
(20.1)
133.8
16.5
25.0
22.9
(75.0)
109.2
96.0
13.8
41.9
16.4
67.3
60.0
PSNH's retail sales volumes were as follows:
3,818
3,911
(93)
PSNH's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $65.9 million for the six months ended June 30, 2016, as compared to the same period in 2015.
Base distribution revenues: Base distribution revenues decreased $0.9 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, as well as increased customer energy conservation efforts, including those resulting from company-sponsored energy efficiency programs, were the primary drivers of a 2.4 percent decrease in sales volumes during the first half of 2016. Partially offsetting this decrease was a $3.5 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 for the six months ended June 30, 2016, as compared to the same period of 2015 ($58.2 million), driven by lower sales volumes and decreased average retail rates. In addition, retail transmission charges decreased by $8.6 million for the six months ended June 30, 2016, as compared to the same period in 2015.
Transmission revenues increased by $11.5 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 for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to the following:
Purchased Power and Generation Fuel Costs
(54.5)
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 decreased for the six months ended June 30, 2016, as compared to the same period in 2015, driven by an $8.7 million decrease in non-tracked costs that was primarily attributable to the absence in 2016 of a $5 million contribution recorded in the second quarter of 2015 to create a clean energy fund in connection with the generation divestiture agreement, and lower employee-related expenses. Additionally, there was a $3.2 million decrease in tracked costs that was primarily attributable to lower contractor costs due to the timing of planned outages at PSNH's generation facilities, which have no earnings impact.
Amortization of Regulatory Assets, Net expense (the costs of which are tracked) 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 for the six months ended June 30, 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 for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher pre-tax earnings ($4.6 million), higher state taxes ($0.5 million), and various other items ($1.1 million), partially offset by the excess tax benefit due to the adoption of new accounting guidance related to share-based payment transactions ($0.3 million).
PSNH's earnings increased $7.3 million for the six months ended June 30, 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, lower operations and maintenance expense, higher generation earnings and the impact of the distribution rate increase effective July 1, 2015. These favorable earnings impacts were partially offset by lower retail sales volumes and higher depreciation expense.
PSNH had cash flows provided by operating activities of $204.3 million in the first half of 2016, as compared to $150.5 million in the same period in 2015. The increase in operating cash flows was due primarily to income tax refunds of $37.3 million received in the first half of 2016, compared to income tax payments of $9.4 million the same period in 2015. In addition, the timing of payments related to our accounts payable favorably impacted the first half of 2016 operating cash flows, as compared to the same period in 2015. Partially offsetting these favorable impacts were an increase in Pension Plan contributions of $10.2 million in the first half of 2016 and the use of fuel inventories.
52
RESULTS OF OPERATIONS – WESTERN MASSACHUSETTS ELECTRIC COMPANY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for WMECO for the six months ended June 30, 2016 and 2015 included in this combined Quarterly Report on Form 10-Q:
244.5
278.1
(33.6)
(12.1)
72.2
112.7
(40.5)
39.9
(69.9)
19.8
18.9
4.8
182.2
220.6
(38.4)
(17.4)
(7.6)
(1.8)
(100.0)
50.2
46.2
30.1
27.4
9.9
WMECO's retail sales volumes were as follows:
1,707
1,775
(68)
WMECO's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $33.6 million for the six months ended June 30, 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. The revenue decoupling mechanism results in the recovery of approved base distribution revenue requirements.
Fluctuations in the overall level of operating revenues are primarily related to tracked revenues. Tracked revenues consist of certain costs that are recovered from customers in rates through DPU-approved cost tracking mechanisms and therefore have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply costs, retail transmission charges, energy efficiency program costs, low income assistance programs, and restructuring and stranded cost recovery revenues. Tracked revenues decreased due primarily to a decrease in energy supply costs ($41.2 million) driven by decreased average retail rates and lower sales volumes.
Transmission revenues increased by $8.6 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 purchasing of energy supply on behalf of WMECO's customers. These energy supply costs are recovered from customers in DPU-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense decreased for the six months ended June 30 2016, as compared to the same period in 2015, due primarily to the following:
(44.0)
Included in purchased power costs are the costs associated with WMECO's basic service charge and deferred energy supply costs. The basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs was due primarily to lower prices associated with the procurement of energy supply and lower sales volumes.
Operations and Maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the six months ended June 30, 2016, as compared to the same period in 2015, driven by a $2.2 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, and an increase of $1.8 million in non-tracked costs that was primarily attributable to higher employee-related expenses and higher bad debt expense.
Amortization of Regulatory Assets, Net expense (the costs of which are tracked) decreased for the six months ended June 30, 2016, as compared to the same period in 2015, due to the timing of refunds or recovery of tracked costs from customers in rates. Energy and energy related costs are recovered from customers in rates and have no impact on earnings.
Other Income/(Loss), Net decreased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to lower AFUDC on equity funds ($0.9 million) and a decrease in net gains related to the deferred compensation plans ($0.7 million).
Income Tax Expense increased for the six months ended June 30, 2016, as compared to the same period in 2015, due primarily to higher pre-tax earnings ($1.4 million), partially offset by various other items ($0.1 million).
WMECO's earnings increased $2.7 million for the six months ended June 30, 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 operations and maintenance expense, higher depreciation expense and higher property and other tax expense.
WMECO had cash flows provided by operating activities of $95.9 million for the first half of June 30, 2016, as compared to $43.9 million in the same period of 2015. The increase in operating cash flows was due primarily to the timing of collections of accounts receivable and payments related to accounts payable and the timing of regulatory recoveries relating to purchased power costs. In addition, the increase in operating cash flows was due to an increase of $17.3 million in income tax refunds in the first half of 2016, as compared to the same period in 2015.
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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 June 30, 2016, our Regulated companies did not hold collateral (letters of credit) from counterparties related to our standard service contracts. As of June 30, 2016, Eversource had $15.6 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 June 30, 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 June 30, 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.
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 decision became final on July 18, 2016.
The Conservation Law Foundation (CLF) filed a citizens’ suit under the provisions of the federal Clean Air Act against PSNH alleging permitting violations at the company’s Merrimack generating station, as described under the caption "Conservation Law Foundation v. PSNH" in Part I, Item 3, "Legal Proceedings" of our 2015 Form 10-K. On July 15, 2016, CLF and PSNH jointly filed a status report in the United States District Court, District of New Hampshire. By way of the status report, CLF notified the Court that it would initiate voluntary dismissal of the lawsuit with prejudice if there are no requests for rehearing of the NHPUC order approving the Agreement that, among other things, instructs PSNH to begin the process to divest its generation assets. On August 1, 2016, the NHPUC order became final and, as a result, and per the terms of the previously filed status report, on August 3, 2016, CLF dismissed this lawsuit with prejudice. For further information, see "Financial Condition and Business Analysis – Regulatory Developments and Rate Matters – New Hampshire – Generation Divestiture" in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Other than as set forth above, 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)
April 1 – April 30, 2016
105,894
58.27
May 1 – May 31, 2016
56.70
June 1 – June 30, 2016
99,935
58.11
214,427
58.13
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)
Ratio of Earnings to Fixed Charges
Certification by the Chief Executive Officer of Eversource Energy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Financial Officer of Eversource Energy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Executive Officer and Chief Financial Officer of Eversource Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Listing of Exhibits (CL&P)
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)
*4
A Form of 2.70% Debenture Due 2026 (Exhibit 4, NSTAR Electric Company Current Report on Form 8-K filed May 31, 2016, File No. 001-02301)
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)
Eighth Supplemental Indenture between WMECO and The Bank of New York Trust Company, N.A., as Trustee, dated as of June 1, 2016 (Exhibit 4.1, WMECO Current Report on Form 8-K filed June 29, 2016, File No. 000-07624)
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
58
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
August 5, 2016
By:
/s/
Jay S. Buth
Vice President, Controller and Chief Accounting Officer
NSTAR ELECTRIC COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
60