EVERSOURCE ENERGY 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 endedMarch 31, 2020 , as well as the Eversource 2019 combined Annual Report on Form 10-K. References in this combined Quarterly Report on Form 10-Q to "Eversource," the "Company," "we," "us," and "our" refer toEversource 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 ofCL&P are herein collectively referred to as the "financial statements."
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.
The only common equity securities that are publicly traded are common shares of Eversource. The earnings and EPS of each business discussed below do not represent a direct legal interest in the assets and liabilities of such business but rather represent a direct interest in our assets and liabilities as a whole. EPS by business is a financial measure not recognized under GAAP, calculated by dividing the Net Income Attributable to Common Shareholders of each business by the weighted average diluted Eversource common shares outstanding for the period. Our earnings discussion also includes non-GAAP financial measures referencing our 2020 earnings and EPS excluding certain acquisition costs and our Q2 2019 earnings and EPS excluding the impairment charge for the NPT project. We use these non-GAAP financial measures to evaluate and provide details of earnings results by business and to more fully compare and explain our 2020 and 2019 results without including these items. We believe the acquisition costs and the NPT impairment charge are not indicative of our ongoing costs and performance. Due to the nature and significance of these items on Net Income Attributable to Common Shareholders, we believe that the non-GAAP presentation is a more meaningful representation of our financial performance and provides additional and useful information to readers of this report in analyzing historical and future performance of our business. These non-GAAP financial measures should not be considered as alternatives to reported Net Income Attributable to Common Shareholders or EPS determined in accordance with GAAP as indicators of operating performance. From time to time, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify our forward-looking statements through the use of words or phrases such as "estimate," "expect," "anticipate," "intend," "plan," "project," "believe," "forecast," "should," "could," and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to:
• cyberattacks or breaches, including those resulting in the compromise of
the confidentiality of our proprietary information and the personal
information of our customers,
• disruptions in the capital markets or other events that make our access
to necessary capital more difficult or costly,
• the negative impacts of the 2019 novel coronavirus (COVID-19) pandemic on
our customers, vendors, employees, regulators, and operations,
• changes in economic conditions, including impact on interest rates, tax
policies, and customer demand and payment ability,
• ability or inability to commence and complete our major strategic
development projects and opportunities,
• acts of war or terrorism, physical attacks or grid disturbances that may
damage and disrupt our electric transmission and electric, natural gas,
and water distribution systems,
• actions or inaction of local, state and federal regulatory, public policy
and taxing bodies,
• substandard performance of third-party suppliers and service providers,
• fluctuations in weather patterns, including extreme weather due to
climate change,
• changes in business conditions, which could include disruptive technology
or development of alternative energy sources related to our current or
future business model,
• contamination of, or disruption in, our water supplies,
• changes in levels or timing of capital expenditures, including the
Columbia Gas of Massachusetts asset acquisition;
• changes in laws, regulations or regulatory policy, including compliance
with environmental laws and regulations,
• 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
All such factors are difficult to predict and contain uncertainties that may materially affect our actual results, many of which are beyond our control.
You
should not place undue reliance on the forward-looking statements, as each
speaks only as of the date on which such statement is made, and, except as
required by federal securities laws, we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for us to predict all of such factors, nor can we assess the impact of
each such factor on the business
40
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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 2019 combined Annual
Report on Form 10-K. This combined Quarterly Report on Form 10-Q and
Eversource's 2019 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:
Earnings Overview and Future Outlook:
• We earned
2020, and
compared with
2019, and
Our 2020 results include after-tax acquisition costs related to our
planned purchase of the assets of
million, or
include an after-tax impairment charge of
share, related to our investment in the NPT project. Excluding those
acquisition costs in 2020, we earned
in the second quarter of 2020, and
the first half of 2020. Excluding the NPT impairment charge in 2019, we
earned
and $544.5 million , or $1.71 per share, in the first half of 2019.
• Our electric distribution segment earned $115.0 million , or $0.34 per
share, in the second quarter of 2020, and $245.1 million , or $0.73 per
share, in the first half of 2020, compared with
per share, in the second quarter of 2019, and
share, in the first half of 2019. Our natural gas distribution segment
earned
and
with a loss of
distribution segment earned $10.4 million , or $0.03 per share, in the
second quarter of 2020, and $12.5 million , or $0.04 per share, in the
first half of 2020, compared with
second quarter of 2019, and
half of 2019.
• Our electric transmission segment earned $129.5 million , or $0.39 per
share, in the second quarter of 2020, and $256.2 million , or $0.76 per
share, in the first half of 2020, compared with a net loss of $87.4
million, or
of
the after-tax NPT impairment charge of
our electric transmission segment earned $117.0 million , or $0.37 per
share, in the second quarter of 2019, and $235.3 million , or $0.74 per
share, in the first half of 2019.
• Eversource parent and other companies had net losses of
million, or
million in the first half of 2019. Excluding acquisition costs,
Eversource parent and other companies had net losses of
$0.01 per share, in the second quarter of 2020, and$7.2 million , or$0.02 per share, in the first half of 2020. • We reaffirm 2020 earnings of between$3.60 per share and$3.70 per share
and our long-term EPS growth rate through 2024 from our regulated utility
businesses of between 5 to 7 percent.
• As of the date of our filing, the outbreak of COVID-19 has not resulted in
significant financial or operational impacts. We are continuing to closely
monitor the COVID-19 pandemic, and we continue to operate under our
pandemic response plan. However, we cannot at this time predict the
impacts that the COVID-19 pandemic will have on our future financial
condition, results of operations, cash flows, and our business operations.
Liquidity:
• Cash flows provided by operating activities totaled
first half of 2020, compared with
2019. Investments in property, plant and equipment totaled
in the first half of 2020, compared with $1.38 billion in the first half
of 2019. Cash totaled $64.9 million as of June 30, 2020 , compared with
under our commercial paper programs totaled $1.61 billion as of June 30,
2020 .
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• In the first half of 2020, we issued 11,960,000 common shares, which
resulted in proceeds of $929.0 million , net of issuance costs.
• In the first half of 2020, we issued $940 million of new long-term debt,
consisting of
parent, and
were used primarily to refinance investments in eligible green
expenditures at
parent, and to refinance existing indebtedness, fund capital expenditures
and for general corporate purposes at NSTAR Gas .
• On
payment of $0.5675 per share, which was paid on June 30, 2020 to
shareholders of record as of May 20, 2020 .
Impact of COVID-19
COVID-19 has adversely affected workers and the economy and caused significant volatility in the financial markets. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we continue to closely monitor how COVID-19 related developments affect Eversource. As of the date of our filing and based on available information, we have not experienced, nor are we able to predict, significant impacts directly related to the pandemic that could adversely affect our current or future operations, financial position, results of operations, and cash flows. The extent of the impact to us in the future will vary and depend in large part on the duration, scope and severity of the pandemic, and the resulting impact on economic, health care and capital market conditions. Operational: We provide a critical service to our customers and have taken extensive measures to maintain its safety and reliability. We have implemented our company-wide pandemic plan, which guides our emergency response, business continuity, and the precautionary measures we are taking to ensure the safety, health, and well-being of our employees, our customers, and our communities. We continue to adjust our company-wide pandemic plan to address various scenarios, including reduced workforce levels and limited mutual aid in the event of a significant storm event, and have implemented protective measures to mitigate the impact of COVID-19 on our workforce. We have implemented work from home policies where appropriate, resulting in nearly half of our employees working remotely. For our employees performing essential functions that are required onsite, such as field crews and system operations, we have taken significant safety measures, including establishing social distancing measures, enabling critical operations to be shifted to different control center locations if necessary, and increasing facility sanitization efforts and promoting both the availability and use of personal protective equipment. In mid-March, we suspended non-critical work inside customer premises, which included energy audits inside our customers' homes and businesses. These activities resumed in early July with the implementation of new health and safety guidelines for the restart of energy efficiency services to customers. As of the date of our filing, we do not expect a significant impact on our 2020 energy efficiency program spending and efforts, which assumes the resumption of energy efficiency programs throughout the second half of 2020. Actual energy efficiency spending levels will depend on the extent and duration of the pandemic. At this time, our workforce staffing levels continue to enable us to safely and reliably deliver our critical services to customers. ThroughAugust 5, 2020 , a total of 50 employees had contracted COVID-19, and a cumulative total of 772 employees had self-quarantined, of which 751 employees have returned to the workforce. The number of quarantined employees peaked at 215 in April. We are also preparing for the re-entry of our employees working remotely. Our re-entry plan includes a multi-phase approach that is measured, cautious and gradual. The plan is informed by public health guidance with the safety of our employees and customers as our highest priority. We are in the early phases of our re-entry plan and have returned fewer than 100 remote employees back to the workplace. State and federal guidelines, external conditions, and critical business priorities continue to inform the pace of our re-entry plan. Significant health and safety measures and pandemic protocols, including social distancing requirements, the use of personal protective equipment, sanitization efforts and employee training, are in place for all employees working onsite today and specific plans have been developed for our eventual re-entry to the workplace. In the states we serve, COVID-19 is currently spreading in a slower manner, as compared to the initial outbreak that began in mid-March, and measures used to control it, such as social distancing and face coverings, are having a positive reduction in its spread. Each of our states has seen a decrease in the infection rate and in the number of positive tests, as well as more capacity in hospitals, and improved testing availability and contact tracing. Financial: Overall, our future financial position, results of operations, and cash flows could be negatively impacted by COVID-19 as it relates to the valuation of customer receivables, collectibility estimates and customer payment plans, elimination of late payment revenues, lower sales volumes primarily from PSNH's commercial and industrial customers, energy efficiency spending levels and incentives earned, and increased expenses for cleaning and supplies for personal protective equipment. Other potential negative financial impacts relate to market volatility on our equity and debt securities, access to, as well as cost of, capital resources, and the ability of various third-party vendors and suppliers to fulfill their obligations. 42 -------------------------------------------------------------------------------- As ofJune 30, 2020 , our allowance for uncollectible customer receivable balances of$270.0 million , of which$175.5 million relates to hardship accounts that are specifically recovered in rates charged to customers, adequately reflected the collection risk and net realizable value for our receivables and has not been materially impacted by COVID-19. We will continue to evaluate the adequacy of the uncollectible allowance in future reporting periods based on an ongoing assessment of accounts receivable collections, delinquency statistics, the impact on electric residential customer bills because of higher usage in July driven by warmer than normal weather, COVID-19 developments, including any potential federal legislation, and analysis of aging-based quantitative assessments. We continue to work closely with our state regulatory commissions and consumer advocates on several customer assistance measures, including more flexible and new payment plan options in order to mitigate the impact on customer rates in the future, as well as financial hardship and arrearage management programs for those customers who are unable to pay their utility bills. We developed these long-term solutions for customers in order to help minimize the extent of the impact of COVID-19 on customer receivable balances and customers' affordability in light of the current financial impact they may experience. Our operating companies have also eliminated late payment charges at this time. Beginning inMarch 2020 ,Connecticut ,Massachusetts andNew Hampshire established moratoriums on disconnections of residential and commercial customers for non-payment for utility service. InConnecticut , the moratorium on disconnections remains in place for residential customers, but the moratorium for commercial customers ended onAugust 1, 2020 . InMassachusetts , the moratorium remains in place until it is lifted by the governor or state regulatory commission. InNew Hampshire , the moratorium for both residential and commercial customers ended onJuly 15, 2020 , however, PSNH has not yet begun to disconnect customers. As of the date of our filing, our operating companies have experienced some lower cash collections from customers because of the moratorium on disconnections and the economic slowdown resulting from the COVID-19 pandemic, primarily at our natural gas distribution businesses driven by the seasonality of their usage patterns. However, overall it is not a significant reduction in customer payments. We believe that we are developing successful mechanisms with our state regulatory commissions that allow, or will allow, us to recover our incremental costs associated with COVID-19, which include uncollectible customer receivable expenses, while balancing the impact on our customers' bills and our operating cash flows. As such, as of the date of our filing, our reserve for uncollectible accounts has not been materially adversely impacted. As ofJune 30, 2020 , net incremental costs as a result of COVID-19 that we have deferred totaled$6.6 million , of which$4.1 million was related to uncollectible expense incurred at our natural gas distribution segment. In the second quarter and first half of 2020, respectively, incremental COVID-19 expenses that reduced pre-tax earnings totaled$6.2 million and$7.5 million and related to facilities and fleet cleaning, sanitizing costs and supplies for personal protective equipment. For further information onConnecticut ,Massachusetts and New Hampshire COVID-19-related regulatory developments, see "Regulatory Developments and Rate Matters - COVID-19 Regulatory Dockets" included in this Management's Discussion and Analysis. An extended economic slowdown could result in lower demand for electricity, natural gas and/or water by our commercial and industrial customers. However, fluctuations in retail sales volumes forCL&P ,NSTAR Electric ,Yankee Gas ,NSTAR Gas and ourConnecticut water distribution business are not expected to materially impact earnings due to their respective state regulatory commission-approved distribution revenue decoupling mechanisms. Overall, we believe our risk of exposure to lower demand and resulting lost sales revenues is limited as our regulated utilities, with the exception of PSNH, are under cost-of-service rates with revenue decoupling mechanisms and a significant portion of uncollectible expenses are tracked for ultimate recovery. Our revenue decoupling mechanisms replace actual customer usage with a fixed annual revenue stream, and is reconciled each year as part of our annual decoupling filing in each respective jurisdiction. As ofJune 30, 2020 , we did not identify indicators or triggering events for impairments to our goodwill, long-lived assets, available-for-sale debt securities, or equity method investment carrying values. As of the date of our filing, based on available information and the current market trends, we do not expect an impairment to these assets for the remainder of 2020. We continue to monitor Eversource parent's and our operating companies' ability to access the global capital and credit markets. At the onset of the pandemic inthe United States , liquidity in the commercial paper credit market began to deteriorate rapidly. However, federal legislative actions, including actions taken by theFederal Reserve , have provided sufficient liquidity and stabilization of the credit markets. An extended economic slowdown could result in Eversource parent and our operating companies finding difficulty in accessing necessary capital resources and incurring higher costs for those capital resources. As of the date of our filing, based on available information and the current market trends, we believe we will continue to have access to needed liquidity and capital resources to successfully execute our projected 2020 capital expenditures and strategies. We expect our existing borrowing availability under our commercial paper programs, our existing revolving credit facilities that serve to backstop those commercial paper programs, in addition to access to the debt and equity markets, will be sufficient to meet our future liquidity and capital resource needs. In addition, the successful execution of our timeline for developing our offshore wind projects is based on several factors, including state and federal siting and permitting approvals. We are developing mitigation plans to address permitting delays due to COVID-19 restrictions on our offshore wind projects. For further information, see "Business Development and Capital Expenditures - Offshore Wind Business" included in this Management's Discussion and Analysis. 43 -------------------------------------------------------------------------------- Pension and PBOP plan assets and obligations are remeasured annually using aDecember 31st measurement date. Our future pension and PBOP obligations are highly dependent on benefit plan asset returns, interest rates, and discount rates, all of which could be materially impacted by an extended economic slowdown. Should these financial metrics be negatively impacted by COVID-19 as ofDecember 31, 2020 , it could result in the underperformance of our pension and PBOP plan investments, an increase in pension and PBOP obligations and employee benefit plan costs, and in a minimum pension funding requirement due byMarch 31, 2022 for the 2021 Plan year. We continue to monitor federal legislative pension developments that could provide additional pension funding relief. As of the date of our filing, we are unable to determine whether the pandemic will have a material impact to our future pension and PBOP obligations and plan costs and minimum funding requirements.NSTAR Electric andNSTAR Gas recover qualified pension and PBOP expenses through a rate reconciling mechanism that fully tracks the change in net pension and PBOP expenses each year. Our electric transmission companies' rates provide for an annual true-up of estimated to actual costs, which include pension and PBOP expenses.
Earnings Overview
Consolidated: Below is a summary of our earnings by business, which also
reconciles the non-GAAP financial measures of consolidated non-GAAP earnings and
EPS, as well as EPS by business, to the most directly comparable GAAP measures
of consolidated Net Income Attributable to Common Shareholders and diluted EPS.
For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
(Millions of Dollars,
Except Per Share
Amounts) Amount Per Share Amount Per Share Amount Per Share Amount Per Share
Net Income Attributable
to Common
Shareholders (GAAP) $ 252.2 $ 0.75 $ 31.5 $ 0.10 $ 587.0 $ 1.75 $ 340.1 $ 1.07
Regulated Companies
(non-GAAP) $ 258.2 $ 0.77 $ 228.6 $ 0.72 $ 601.6 $ 1.79 $ 544.2 $ 1.71
Eversource Parent and
Other Companies
(non-GAAP) (2.1 ) (0.01 ) 7.3 0.02 (7.2 ) (0.02 ) 0.3 -
Non-GAAP Earnings $ 256.1 $ 0.76 $ 235.9 $ 0.74 $ 594.4 $ 1.77 $ 544.5 $ 1.71
Acquisition-Related
Costs (after-tax) (1) (3.9 ) (0.01 ) - - (7.4 ) (0.02 ) - -
Impairment of Northern
Pass Transmission
(after-tax) - - (204.4 ) (0.64 ) - - (204.4 ) (0.64 )
Net Income Attributable
to Common
Shareholders (GAAP) $ 252.2 $ 0.75 $ 31.5 $ 0.10 $ 587.0 $ 1.75 $ 340.1 $ 1.07 (1) These costs are associated with our pending acquisition of the assets of
Regulated Companies: Our regulated companies comprise the electric
distribution, electric transmission, natural gas distribution and water
distribution segments. A summary of our segment earnings and EPS is as follows:
For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
(Millions of Dollars,
Except Per Share
Amounts) Amount Per Share Amount Per Share Amount Per Share Amount Per Share
Net Income - Regulated
Companies (GAAP) $ 258.2 $ 0.77 $ 24.2 $ 0.08 $ 601.6 $ 1.79 $ 339.8 $ 1.07
Electric Distribution $ 115.0 $ 0.34 $ 105.4 $ 0.33 $ 245.1 $ 0.73 $ 225.4 $ 0.71
Electric Transmission,
excluding Northern Pass
Transmission impairment
(Non-GAAP) 129.5 0.39 117.0 0.37 256.2 0.76 235.3 0.74
Natural Gas
Distribution 3.3 0.01 (1.8 ) - 87.8 0.26 74.7 0.23
Water Distribution 10.4 0.03 8.0 0.02 12.5 0.04 8.8 0.03
Net Income - Regulated
Companies (Non-GAAP) $ 258.2 $ 0.77 $ 228.6 $ 0.72 $ 601.6 $ 1.79 $ 544.2 $ 1.71
Impairment of Northern
Pass Transmission
(after-tax) - - (204.4 ) (0.64 ) - - (204.4 ) (0.64 )
Net Income - Regulated
Companies (GAAP) $ 258.2 $ 0.77 $ 24.2 $ 0.08 $ 601.6 $ 1.79 $ 339.8 $ 1.07
Our electric distribution segment earnings increased $9.6 million in the second
quarter of 2020, as compared to the second quarter of 2019, due primarily to
base distribution rate increases at PSNH effective July 1, 2019 , at CL&P
effective May 1, 2020 and May 1, 2019 , and at NSTAR Electric effective January
1, 2020 , and higher earnings from CL&P's capital tracker mechanism due to
increased electric system improvements. The earnings increase was partially
offset by higher operations and maintenance expense, higher depreciation
expense, and higher interest expense.
Our electric distribution segment earnings increased $19.7 million in the first
half of 2020, as compared to the first half of 2019, due primarily to base
distribution rate increases at PSNH effective July 1, 2019 , at CL&P effective
May 1, 2020 and May 1, 2019 , and at NSTAR Electric effective January 1, 2020 ,
and higher earnings from CL&P's capital tracker mechanism due to increased
electric system improvements. The earnings increase was partially offset by
higher depreciation expense, higher operations and maintenance expense, higher
interest expense, and the absence of the first quarter 2019 recognition of
carrying charges on PSNH's 2013 through 2016 storm costs approved for recovery.
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Our electric transmission segment earnings increased $216.9 million and $225.3
million in the second quarter and first half of 2020, respectively, as compared
to the second quarter and first half of 2019, due primarily to the absence in
2020 of the second quarter 2019 impairment of NPT, which resulted in an
after-tax charge of $204.4 million , or $0.64 per share. Excluding the NPT
impairment charge, earnings increased $12.5 million and $20.9 million in the
second quarter and first half of 2020, respectively, as compared to the second
quarter and first half of 2019, due primarily to a higher transmission rate base
as a result of our continued investment in our transmission infrastructure and a
higher benefit from the annual billing and cost reconciliation filing with FERC .
Our natural gas distribution segment earnings increased $5.1 million in the
second quarter of 2020, as compared to the second quarter of 2019, due primarily
to higher earnings from capital tracker mechanisms due to continued investments
in natural gas infrastructure, a base distribution rate increase at Yankee Gas
effective January 1, 2020 and lower interest expense, partially offset by higher
property tax expense, higher operations and maintenance expense, and higher
depreciation expense.
Our natural gas distribution segment earnings increased $13.1 million in the
first half of 2020, as compared to the first half of 2019, due primarily to a
base distribution rate increase at Yankee Gas effective January 1, 2020 , higher
earnings from capital tracker mechanisms due to
continued investments in natural gas infrastructure and lower interest expense,
partially offset by higher operations and maintenance expense, higher
depreciation expense, and higher property tax expense.
Our water distribution segment earnings increased $2.4 million and $3.7 million
in the second quarter and first half of 2020, respectively, as compared to the
second quarter and first half of 2019, due primarily to higher revenues from
Connecticut's capital tracker mechanism due to increased infrastructure
improvements and lower depreciation expense.
Eversource Parent and Other Companies: Eversource parent and other companies
had increased losses of $13.3 million and $14.9 million in the second quarter
and first half of 2020, respectively, as compared to the second quarter and
first half of 2019, due primarily to lower unrealized gains associated with our
equity method investment in a renewable energy fund, and acquisition costs
related to the pending acquisition of the assets of Columbia Gas of
Massachusetts of $3.9 million and $7.4 million in the second quarter and first
half of 2020, respectively, partially offset by a higher return at Eversource
Service as a result of increased investments in property, plant and equipment
and lower interest expense.
Liquidity
Cash totaled
Short-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. Eversource parent,CL&P , PSNH,NSTAR Gas ,Yankee Gas andAquarion Water Company of Connecticut are also parties to a five-year$1.45 billion revolving credit facility, which terminates onDecember 6, 2024 . The revolving credit facility serves to backstop Eversource parent's$1.45 billion commercial paper program.NSTAR Electric has a$650 million commercial paper program allowingNSTAR Electric to issue commercial paper as a form of short-term debt.NSTAR Electric is also a party to a five-year$650 million revolving credit facility, which terminates onDecember 6, 2024 . The revolving credit facility serves to backstopNSTAR Electric's $650 million commercial paper program. The amount of borrowings outstanding and available under the commercial paper programs were as follows: Borrowings Outstanding as of Available Borrowing Capacity as of Weighted-Average Interest Rate as of (Millions of Dollars) June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019 Eversource Parent Commercial Paper Program$ 351.5 $ 1,224.9$ 1,098.5 $ 225.1 0.18 % 1.98 % NSTAR Electric Commercial Paper Program 142.0 10.5 508.0 639.5 0.12 % 1.63 %
There were no borrowings outstanding on either the Eversource parent or
OnMay 15, 2020 ,CL&P and PSNH entered into uncommitted line of credit agreements, which will expire byMay 14, 2021 . TheCL&P agreements total$450 million and the PSNH agreements total$300 million . There are no borrowings outstanding on either theCL&P or PSNH uncommitted line of credit agreements as ofJune 30, 2020 . Amounts outstanding under the commercial paper programs are included in Notes Payable and classified in current liabilities on theEversource andNSTAR Electric balance sheets, as all borrowings are outstanding for no more than 364 days at one time. Intercompany Borrowings: Eversource parent uses its available capital resources to provide loans to its subsidiaries to assist in meeting their short-term borrowing needs. Eversource parent records intercompany interest income from its loans to subsidiaries, which is eliminated in consolidation. Intercompany loans from Eversource parent to its subsidiaries are eliminated in consolidation on Eversource's balance sheets. As ofJune 30, 2020 , there were intercompany loans from Eversource parent toCL&P of$272.0 million , to PSNH of$119.3 million , and to a subsidiary ofNSTAR Electric of$38.1 million . As ofDecember 31, 2019 , there were intercompany loans from Eversource parent toCL&P of$63.8 million , to PSNH of$27.0 million , and to a subsidiary ofNSTAR Electric of$30.3 million . Intercompany loans from Eversource parent are included in Notes Payable to Eversource Parent and classified in current liabilities on the respective subsidiary's balance sheets. 45
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Long-Term Debt: The following table summarizes long-term debt issuances and
repayments:
Issue
Date or Use of Proceeds for
Repayment Issuance/
(Millions of Dollars) Issuance/(Repayment) Date Maturity Date
Refinanced investments in
eligible green
expenditures, which were
March previously financed in
3.95% 2020 Debentures $ 400.0 2020 April 2030 2018 and 2019
5.10% Series E Senior March
Notes (95.0 ) 2020 March 2020 Paid at maturity
Other:
Eversource Parent 3.45% January
Series P Senior Notes 350.0 2020 January 2050 Paid short-term borrowings
NSTAR Gas 4.46% Series N January
First Mortgage Bonds (125.0 ) 2020 January 2020 Paid at maturity
Yankee Gas 4.87% Series K April
First Mortgage Bonds (50.0 ) 2020 April 2020 Paid at maturity
Refinanced existing
indebtedness, funded
capital expenditures and
NSTAR Gas 2.33% Series R for general corporate
First Mortgage Bonds 75.0 May 2020 May 2025 purposes
Refinanced existing
indebtedness, funded
capital expenditures and
NSTAR Gas 3.15% Series S for general corporate
First Mortgage Bonds 115.0 May 2020 May 2050 purposes
In June 2020 , Aquarion Water Company of Massachusetts provided notice to its
bondholders that it will redeem $32.2 million of long-term debt in connection
with the sale to the town of Hingham, Massachusetts of its water system and
treatment plant that supplies water to the towns of Hingham , Hull and North
Cohasset . As a result, this debt was classified as current as of June 30, 2020 .
Long-Term Debt Issuance Authorization: On January 27, 2020 , the DPU approved
NSTAR Gas' request for authorization to issue up to $270 million in long-term
debt through December 31, 2021 . On July 31, 2020 , the NHPUC approved PSNH's
request for authorization to issue up to $200 million in long-term debt through
December 31, 2020 .
Rate Reduction Bonds: PSNH's RRB payments consist of principal and interest and
are paid semi-annually. PSNH paid $21.6 million of RRB principal payments and
$10.3 million of interest payments in the first half of 2020 and paid $30.7
million of RRB principal payments and $16.2 million of interest payments in the
first half of 2019.
Common Share Issuances and 2019 Forward Sale Agreement: On June 15, 2020 ,
Eversource completed an equity offering of 6,000,000 common shares at a price
per share of $86.26 . Eversource plans to use the net proceeds of this offering
to fund a portion of the planned purchase of the assets of CMA. The issuance of
these common shares resulted in proceeds of $509.2 million , net of issuance
costs.
In June 2019 , Eversource completed an equity offering consisting of 5,980,000
common shares issued directly by the Company and 11,960,000 common shares
issuable pursuant to a forward sale agreement with an investment bank. Under the
forward sale agreement, 11,960,000 common shares were borrowed from third
parties and sold by the underwriters. The forward sale agreement allowed
Eversource, at its election and prior to May 29, 2020 , to physically settle the
forward sale agreement by issuing common shares in exchange for net proceeds at
the then-applicable forward sale price specified by the agreement (initially,
$71.48 per share) or, alternatively, to settle the forward sale agreement in
whole or in part through the delivery or receipt of shares or cash. The forward
sale price was subject to adjustment daily based on a floating interest rate
factor and would decrease in respect of certain fixed amounts specified in the
agreement, such as dividends.
Eversource previously issued 6,000,000 common shares under the forward sale
agreement in December 2019 . On March 23, 2020 , Eversource physically settled a
portion of the forward sale agreement by delivering 1,500,000 common shares in
exchange for net proceeds of $105.7 million . Subsequently, on March 26, 2020 ,
Eversource physically settled the remaining portion of the forward sale
agreement by delivering 4,460,000 common shares in exchange for net proceeds of
$314.1 million . The forward sale price used to determine the cash proceeds
received by Eversource was calculated based on the initial forward sale price,
as adjusted in accordance with the forward sale agreement.
The March and
Eversource used the net proceeds received upon the direct issuance of common shares and the net proceeds received upon settlement of the forward sale agreement to repay short-term debt under the commercial paper program, to fund capital spending and clean energy initiatives, and for general corporate purposes. Cash Flows: Cash flows provided by operating activities totaled$1.01 billion in the first half of 2020, compared with$924.6 million in the first half of 2019. The increase in operating cash flows was due primarily to income tax refunds received of$37.9 million in the first half of 2020, as compared to income tax payments of$51.3 million in the same period in 2019 and the timing of other working capital items. The income tax cash flow increase was driven primarily by the deferral of estimated tax payments from the second quarter of 2020 toJuly 2020 under COVID-19 relief legislation. Partially offsetting these favorable impacts were the timing of cash collections on our accounts receivable and cash payments made on our accounts payable, the timing of collections for regulatory tracking mechanisms primarily related to transmission costs and the absence of$68.8 million in DOE Phase IV proceeds received by CYAPC and YAEC in the second quarter of 2019. 46
-------------------------------------------------------------------------------- OnMay 6, 2020 , ourBoard of Trustees approved a common share dividend payment of$0.5675 per share, which was paid onJune 30, 2020 to shareholders of record as ofMay 20, 2020 . In the first half of 2020, we paid cash dividends of$366.8 million and issued non-cash dividends of$11.6 million in the form of treasury shares, totaling dividends of$378.4 million . In the first half of 2019, we paid cash dividends of$323.3 million and issued non-cash dividends of$16.3 million in the form of treasury shares, totaling dividends of$339.6 million .
Eversource issues treasury shares to satisfy awards under the Company's incentive plans, shares issued under the dividend reinvestment and share purchase plan, and matching contributions under the Eversource 401k Plan.
In the first half of 2020,CL&P ,NSTAR Electric and PSNH paid$69.5 million ,$196.5 million , and$22.3 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 and deferred portions of pension and PBOP expense. In the first half of 2020, investments for Eversource,CL&P ,NSTAR Electric , and PSNH were$1.40 billion ,$407.2 million ,$447.5 million , and$169.2 million , respectively. We expect the future operating cash flows of Eversource,CL&P ,NSTAR Electric and PSNH, along with our existing borrowing availability and access to both debt and equity markets, will be sufficient to meet any working capital and future operating requirements, and capital investment forecasted opportunities.
Business Development and Capital Expenditures
Our consolidated capital expenditures, including amounts incurred but not paid, cost of removal, AFUDC, and the capitalized and deferred portions of pension and PBOP expense (all of which are non-cash factors), totaled$1.44 billion in the first half of 2020, compared to$1.41 billion in the first half of 2019. These amounts included$127.0 million and$97.6 million in the first half of 2020 and 2019, respectively, related to information technology and facilities upgrades and enhancements, primarily atEversource Service and The Rocky River Realty Company . Electric Transmission Business: Our consolidated electric transmission business capital expenditures increased by$1.0 million in the first half of 2020, as compared to the first half of 2019. A summary of electric transmission capital expenditures by company is as follows: For the Six Months Ended June 30, (Millions of Dollars) 2020 2019 CL&P $ 192.7$ 220.6 NSTAR Electric 159.9 166.4 PSNH 104.7 59.6 NPT - 9.7 Total Electric Transmission Segment $ 457.3
Eastern Massachusetts Transmission Projects: These projects consist of a portfolio of electric transmission upgrades in southernNew Hampshire , northernMassachusetts and continuing into the greaterBoston metropolitan area, of which 28 upgrades are in Eversource's service territory (two inNew Hampshire and 26 inMassachusetts ). The twoNew Hampshire upgrades, including theMerrimack Valley Reliability Project , have been placed in service, and 20 Massachusetts upgrades have been placed in service. OnDecember 17, 2019 , theMassachusetts Siting Board issued a favorable decision on theSudbury-Hudson Reliability Project , the last project requiring such approval. OnJanuary 17, 2020 , theTown of Sudbury and Protect Sudbury, a community group, appealed the decision to theMassachusetts Supreme Judicial Court and oral arguments were conducted onMarch 17, 2020 . OnJuly 9, 2020 , a similar appeal by the Town of Winchester of the Massachusetts Siting Board's order approving theWakefield -Woburn Reliability Project was unanimously rejected by the Massachusetts Appeals Court. The Court simultaneously rejected the Town's subsequent appeal of the Siting Board's decision allowing local permitting processes to be bypassed. Construction on our portion of the project had commenced in the Towns ofStoneham andWoburn inMay 2020 . The remaining upgrades are under construction and are expected to be placed in service in 2021. We estimate our portion of the investment will be approximately$750 million , of which$466.8 million has been spent and capitalized throughJune 30, 2020 . Hartford-Area Transmission Projects: These projects consist of 27 projects in theHartford, Connecticut area with an expected investment of approximately$350 million . As ofJune 30, 2020 , 26 projects have been placed in service, and one project is in active construction and is expected to be placed in service in the fourth quarter of 2020. As ofJune 30, 2020 ,CL&P had spent and capitalized$290.8 million in costs associated with these projects.Seacoast Reliability Project :The Seacoast Reliability Project consists of a 13-mile, 115kV transmission line within severalNew Hampshire communities, using a combination of overhead, underground and underwater line designs to help meet the growing demand for electricity in the Seacoast region. The project was placed in service onMay 29, 2020 and resulted in an investment of approximately$123 million . 47
-------------------------------------------------------------------------------- Ready Path Solution: The Ready Path Solution was chosen by ISO-NE as part of the first competitive solicitation for reliability upgrades inNew England to meet the energy shortfall that will be created with the retirement of theMystic Generating Station inMassachusetts in 2024. Our portion of the portfolio consists of installing new equipment at Eversource's existingNorth Cambridge Substation with an estimated investment of approximately$14 million .
All project costs are anticipated to be fully recoverable through transmission rates.
Distribution Business: A summary of distribution capital expenditures is as
follows:
For the Six Months Ended June 30,
(Millions of NSTAR Total
Dollars) CL&P Electric PSNH Electric Natural Gas Water Total
2020
Basic Business $ 92.8 $ 101.9 $ 22.1 $ 216.8 $ 38.3 $ 4.9 $ 260.0
Aging
Infrastructure 91.0 113.6 45.0 249.6 175.8 49.6 475.0
Load Growth
and Other 36.2 51.0 8.1 95.3 23.4 0.4 119.1
Total
Distribution 220.0 266.5 75.2 561.7 237.5 54.9 854.1
Solar - 1.0 - 1.0 - - 1.0
Total $ 220.0 $ 267.5 $ 75.2 $ 562.7 $ 237.5 $ 54.9 $ 855.1
2019
Basic Business $ 142.9 $ 142.4 $ 19.1 $ 304.4 $ 29.4 $ 5.6 $ 339.4
Aging
Infrastructure 96.0 96.6 52.7 245.3 125.8 42.9 414.0
Load Growth
and Other 32.0 28.6 7.1 67.7 26.3 0.9 94.9
Total
Distribution 270.9 267.6 78.9 617.4 181.5 49.4 848.3
Solar - 4.8 - 4.8 - - 4.8
Total $ 270.9 $ 272.4 $ 78.9 $ 622.2 $ 181.5 $ 49.4 $ 853.1
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 and other
includes requests for new business and capacity additions on distribution lines
and substation additions and expansions.
For the natural gas distribution business, 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 and other reflects growth in existing service territories
including new developments, installation of services, and expansion.
For the water distribution business, basic business addresses daily operational
needs including periodic meter replacement, water main relocation, facility
maintenance, and tools. Aging infrastructure relates to reliability and the
replacement of water mains, regulators, storage tanks, pumping stations,
wellfields, reservoirs, and treatment facilities. Load growth and other reflects
growth in our service territory, including improvements of acquisitions,
installation of new services, and interconnections of systems.
Pending Acquisition of Assets of Columbia Gas of Massachusetts : On February 26,
2020 , Eversource and NiSource Inc. entered into an asset purchase agreement (the
Agreement) pursuant to which Eversource would acquire certain assets that
comprise NiSource's local natural gas distribution business in Massachusetts ,
which is doing business as Columbia Gas of Massachusetts (CMA). The purchase
price of $1.1 billion includes a target working capital amount that is subject
to adjustment to reflect actual working capital as of the closing date.
Eversource would acquire approximately 330,000 residential, commercial, and
industrial natural gas customers, as well as over 5,000 miles of natural gas
distribution pipeline across more than 60 communities in Massachusetts .
The liabilities to be assumed by Eversource under the Agreement specifically
exclude any liabilities (past or future) arising out of, or related to, the
fires and explosions that occurred on September 13, 2018 in Lawrence , Andover
and North Andover, Massachusetts related to the delivery of natural gas by CMA,
including certain subsequent events, all as described and in the DPU's Order on
Scope dated December 23, 2019 (D.P.U. 19-141) (the Greater Lawrence Incident or
GLI). The liabilities to be assumed also exclude any further emergency events
prior to the closing of the acquisition related to the restoration and
reconstruction with respect to the GLI, including any losses arising out of, or
related to, any litigation, demand, cause of action, claim, suit, investigation,
proceeding, indemnification agreements or rights. Eversource is not assuming any
of CMA's or NiSource Inc.'s debt obligations or notes payable.
The transaction requires approval from the DPU, the Maine Public Utilities
Commission , the FERC , and the Federal Communications Commission , and the
resulting rate plan requires DPU approval as well. The relevant review period
under the Hart-Scott-Rodino Act has expired. On July 2, 2020 , Eversource, CMA
and NiSource filed an application with the DPU seeking approval of the sale of
CMA assets to Eversource, which included a settlement with the Massachusetts
Attorney General's Office , the DOER, and the Low-Income Weatherization and Fuel
Assistance Program Network. The application requests approval of the transaction
and the related rate plan by September 30, 2020 .
48
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Eversource expects to finance the asset acquisition through a combination of
debt and equity issuances in a ratio that is consistent with our current
consolidated capital structure. The transaction is expected to close shortly
after the end of the third quarter of 2020.
Offshore Wind Business: Our offshore wind business includes ownership interests
in North East Offshore and Bay State Wind, which together hold PPAs and
contracts for the Revolution Wind, South Fork Wind and Sunrise Wind projects, as
well as offshore leases through BOEM. Our offshore wind projects are being
developed and constructed through a joint and equal partnership with Ørsted.
This partnership also participates in new procurement opportunities for offshore
wind energy in the Northeast U.S. On July 21, 2020 , New York's second offshore
wind RFP for up to 2,500 MW was issued, and we expect to participate in that
RFP.
Eversource has a 50 percent ownership interest in North East Offshore, which
holds the Revolution Wind and South Fork Wind projects, as well as a 257
square-mile ocean lease off the coasts of Massachusetts and Rhode Island .
Eversource also has a 50 percent ownership interest in Bay State Wind, which
holds the Sunrise Wind project. Bay State Wind's separate 300-square-mile ocean
lease is located approximately 25 miles south of the coast of Massachusetts
adjacent to the North East Offshore area. In aggregate, the Bay State Wind and
the North East Offshore ocean lease sites jointly-owned by Eversource and Ørsted
could eventually develop at least 4,000 MW of clean, renewable offshore wind
energy. As of June 30, 2020 , Eversource's total equity investment balance in its
offshore wind business was $660.3 million .
We are preparing our final project designs and advancing the appropriate
federal, state and local siting and permitting processes along with our offshore
wind partner, Ørsted, all of which is competitively sensitive. We currently
expect to make investments in our offshore wind business of approximately $200
million to $400 million during 2020, subject to advancing our final project
designs and federal, state and local permitting processes.
The following table provides a summary of the Eversource and Ørsted major projects with announced contracts:
Contract
Wind Project State Servicing Size (MW) Term (Years) Price per MWh Pricing Terms Status
Fixed price contract;
Revolution Wind
Fixed price contracts;
Revolution Wind
2 percent average price
South Fork Wind New York (LIPA) 90 20 $160.33 escalation Approved
2 percent average price
South Fork Wind New York (LIPA) 40 20 $86.25 escalation (3)
Fixed price contract;
Sunrise Wind New York (NYSERDA) 880 25
(1) The pricing for the Revolution Wind contracts in
publicly disclosed.
(2) Index Offshore Wind Renewable Energy Certificate (OREC) strike price.
(3) The
PPA from 90 MW to 130 MW through an amendment to the original agreement.
Negotiations are currently underway, and a final amendment is expected in
2020.
The in-service dates for our offshore wind projects are subject to receipt of
federal, state and local approvals necessary to construct and operate the
projects. The federal permitting process is governed by BOEM, and state
approvals are required from New York , Rhode Island and Massachusetts .
Significant delays in the siting and permitting process resulting from the
timeline for obtaining approval from BOEM and the state and local agencies, as
well as the impact of COVID-19, could adversely impact the timing of these
projects' in-service dates.
In June 2020 , BOEM released its Offshore Wind Cumulative Impact Analysis as part
of the Draft Supplemental Environmental Impact Statement (EIS) for a
non-affiliated offshore wind project. The study assessed the environmental,
social, and economic impacts of constructing 22 GW of offshore wind projects in
every federal lease area along the East Coast . While this analysis was performed
for the purpose of completing the permitting review of a non-affiliated project,
we anticipate that this analysis has produced a replicable methodology for
completing this analysis that should reduce the timeline for completing future
BOEM reviews.
The South Fork Wind project has commenced the federal siting and permitting
process with the filing of its Construction Operations Plan (COP) application
with BOEM in October 2018 . The first major milestone in the BOEM review process
is an issuance of a Notice of Intent to complete an Environmental Impact
Statement (NOI), which South Fork Wind has received. Although we have received
BOEM's NOI for the South Fork Wind project, we are awaiting a confirmed review
schedule outlining when BOEM will complete its review of the South Fork Wind
COP. South Fork Wind is designated as a "Covered Project " pursuant to Title 41
of the Fixing America's Surface Transportation Act ("FAST41") and a Major
Infrastructure Project under Section 3(e) of Executive Order 13807, which
provides greater federal attention on meeting the project's permitting
timelines. South Fork Wind's FAST41 designation is due for reauthorization in
2020.
Revolution Wind filed its COP application with BOEM in March 2020 and will seek
FAST41 designation by the end of 2020. We are awaiting BOEM to outline its
timeline for completing the review of the Revolution Wind COP in an NOI. The
Sunrise Wind COP application is expected to be filed in 2020.
49
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South Fork Wind commenced the New York state sitting process in 2018. On April
8, 2020 , the state of New York Administrative Law Judge granted a change to the
start of the South Fork Wind evidentiary hearing schedule to September 30, 2020 ,
due to ongoing COVID-19 work and travel restrictions. Onshore and near-shore
site investigation activities occurring within New York's jurisdiction were
suspended in March 2020 due to work restrictions imposed in response to the
COVID-19 pandemic. The activities that were suspended included offshore site
investigations, and onshore environmental and geotechnical surveys. These
activities resumed in early June following the release of revised guidance from
the New York State Energy Research and Development Authority (NYSERDA). We are
developing mitigation plans to address the impacts of the approximately
two-month suspension of field activities due to these COVID-19 restrictions.
These mitigation plans are intended to limit the impact and risk to our project
timelines.
Because BOEM has not yet released a confirmed permit schedule outlining when
BOEM will complete its review of the South Fork Wind COP, as well as the impacts
from the COVID-19 related shut-downs in New York , these impacts will very likely
delay the in-service date of the South Fork Wind project to beyond the projected
end of 2022 in-service date.
We anticipate the principal state permitting applications for Revolution Wind
and Sunrise Wind will be filed in Rhode Island and New York , respectively, in
the second half of 2020. Sunrise Wind was subject to the same New York work
restrictions as South Fork Wind between March 2020 and June 2020 . For Sunrise
Wind, these restrictions prevented progressing our site surveys in New York and
within New York jurisdictional waters due to COVID-19 restrictions. These
restrictions adversely impact the preparation of our federal and state
permitting applications. At this time, we are unable to predict the potential
impact of those delays on the projected in-service dates of the end of 2023 and
the end of 2024 for Revolution Wind and Sunrise Wind, respectively.
FERC Regulatory Matters
FERC ROE Complaints: Four separate complaints were filed at theFERC by combinations ofNew England state attorneys general, state regulatory commissions, consumer advocates, consumer groups, municipal parties and other parties (collectively, the Complainants). In each of the first three complaints, filed onOctober 1, 2011 ,December 27, 2012 , andJuly 31, 2014 , respectively, the Complainants challenged the NETOs' base ROE of 11.14 percent that had been utilized since 2005 and sought an order to reduce it prospectively from the date of the finalFERC order and for the separate 15-month complaint periods. In the fourth complaint, filedApril 29, 2016 , the Complainants challenged the NETOs' base ROE billed of 10.57 percent and the maximum ROE for transmission incentive (incentive cap) of 11.74 percent, asserting that these ROEs were unjust and unreasonable. The ROE originally billed during the periodOctober 1, 2011 (beginning of the first complaint period) throughOctober 15, 2014 consisted of a base ROE of 11.14 percent and incentives up to 13.1 percent. OnOctober 16, 2014 , theFERC set the base ROE at 10.57 percent and the incentive cap at 11.74 percent for the first complaint period. This was also effective for all prospective billings to customers beginningOctober 16, 2014 . ThisFERC order was vacated onApril 14, 2017 by theU.S. Court of Appeals for the D.C. Circuit (the Court). All amounts associated with the first complaint period have been refunded. Eversource has recorded a reserve of$39.1 million (pre-tax and excluding interest) for the second complaint period as ofJune 30, 2020 andDecember 31, 2019 . This reserve represents the difference between the billed rates during the second complaint period and a 10.57 percent base ROE and 11.74 percent incentive cap. The reserve consisted of$21.4 million forCL&P ,$14.6 million forNSTAR Electric and$3.1 million for PSNH as ofJune 30, 2020 andDecember 31, 2019 . OnOctober 16, 2018 ,FERC issued an order on all four complaints describing how it intends to address the issues that were remanded by the Court.FERC proposed a new framework to determine (1) whether an existing ROE is unjust and unreasonable and, if so, (2) how to calculate a replacement ROE. Initial briefs were filed by the NETOs, Complainants and FERC Trial Staff onJanuary 11, 2019 and reply briefs were filed onMarch 8, 2019 . The NETOs' brief was supportive of the overall ROE methodology determined in theOctober 16, 2018 order provided theFERC does not change the proposed methodology or alter its implementation in a manner that has a material impact on the results. TheFERC order included illustrative calculations for the first complaint usingFERC's proposed frameworks with financial data from that complaint. Those illustrative calculations indicated that for the first complaint period, for the NETOs, whichFERC concludes are of average financial risk, the preliminary just and reasonable base ROE is 10.41 percent and the preliminary incentive cap on total ROE is 13.08 percent. If the results of the illustrative calculations were included in a finalFERC order for each of the complaint periods, then a 10.41 percent base ROE and a 13.08 percent incentive cap would not have a significant impact on our financial statements for all of the complaint periods. These preliminary calculations are not binding and do not represent what we believe to be the most likely outcome of a finalFERC order. OnNovember 21, 2019 ,FERC issued Opinion No. 569 affecting the two pending transmission ROE complaints against the Midcontinent ISO (MISO) transmission owners, in whichFERC adopted a new methodology for determining base ROEs. Various parties sought rehearing. OnDecember 23, 2019 , the NETOs filed supplementary materials in the NETOs' four pending cases to respond to this new methodology because of the uncertainty of the applicability to the NETOs' cases. OnMay 21, 2020 , theFERC issued its order in Opinion No. 569-A on the rehearing of the MISO transmission owners' cases, in whichFERC again changed its methodology for determining the MISO transmission owners' base ROEs. Various parties have appealed the MISO transmission owners' opinion. This new methodology differs significantly from the methodology proposed byFERC in itsOctober 16, 2018 order to determine the NETOs' base ROEs in its four pending cases. 50
-------------------------------------------------------------------------------- Given the significant uncertainty regarding the applicability of theFERC opinions in the MISO transmission owners' two complaint cases to the NETOs' pending four complaint cases, Eversource concluded that there is no reasonable basis for a change to the reserve or recognized ROEs for any of the complaint periods at this time. As well, Eversource cannot reasonably estimate a range of any gain or loss for any of the four complaint proceedings at this time. Eversource,CL&P ,NSTAR Electric and PSNH currently record revenues at the 10.57 percent base ROE and incentive cap at 11.74 percent established in theOctober 16, 2014 FERC order. A change of 10 basis points to the base ROE used to establish the reserves would impact Eversource's after-tax earnings by an average of approximately$3 million for each of the four 15-month complaint periods. FERC Notice of Inquiry on ROE: OnMarch 21, 2019 ,FERC issued a Notice of Inquiry (NOI) seeking comments from all stakeholders onFERC's policies for evaluating ROEs for electric public utilities, and interstate natural gas and oil pipelines. OnJune 26, 2019 , the NETOs jointly filed comments supporting the methodology established in theFERC's October 16, 2018 order with minor enhancements going forward. The NETOs jointly filed reply comments in theFERC ROE NOI onJuly 26, 2019 . OnMay 12, 2020 , the NETOs filed supplemental comments in the NOI ROE docket. At this time, Eversource cannot predict how this proceeding will affect its transmission ROEs. FERC Notice of Inquiry and Proposed Rulemaking on Transmission Incentives: OnMarch 21, 2019 ,FERC issued an NOI seeking comments onFERC's policies for implementing electric transmission incentives. OnJune 26, 2019 , Eversource filed comments requesting thatFERC retain policies that have been effective in encouraging new transmission investment and remain flexible enough to attract investment in new and emerging transmission technologies. Eversource filed reply comments onAugust 26, 2019 . OnMarch 20, 2020 ,FERC issued a Notice of Proposed Rulemaking (NOPR) on transmission incentives. The NOPR intends to reviseFERC's electric transmission incentive policies to reflect competing uses of transmission due to generation resource mix, technological innovation and shifts in load patterns.FERC proposes to grant transmission incentives based on measurable project economics and reliability benefits to consumers rather than its current project risks and challenges framework. OnJuly 1, 2020 , Eversource filed comments generally supporting the NOPR. At this time, Eversource cannot predict how these proceedings will affect its transmission incentives. FERC Transmission Rate Settlement: OnDecember 28, 2015 ,FERC initiated a proceeding to review the NETOs' regional and local transmission formula rates due to a lack of transparency, finding that the formula rates appeared to lack sufficient details to determine how costs are derived and recovered in rates. Parties have been engaged in further settlement negotiations and reached an agreement in principle onOctober 22, 2019 . OnJune 15, 2020 , the NETOs (includingCL&P ,NSTAR Electric and PSNH) filed an uncontested Settlement Agreement withFERC , which was signed by all sixNew England state regulatory commissions,New England States Committee on Electricity , New England Municipals and all the NETOs. The Settlement Agreement proposes to implement a new regional and local rate structure effective onJanuary 1, 2021 , establishes annual formula rate transparency procedures effectiveJune 15, 2021 and contains a rate moratorium throughDecember 31, 2024 . There is no time requirement under which theFERC must issue an order, which is required for the new formula rate template to go into effect.U.S. Federal Corporate Income Taxes: Local and regional transmission service rates do not currently reflect amortization of excess ADIT (EDIT) balances that resulted from the Tax Cuts and Job Act (the Act). OnNovember 15, 2018 ,FERC issued a Policy Statement and a separate Notice of Proposed Rulemaking addressing accounting and rate issues related to ADIT changes resulting from the Act. OnNovember 21, 2019 ,FERC issued its final rule requiring public utilities with transmission formula rates to make adjustments to ADIT and EDIT. OnJuly 30, 2020 , Eversource submitted its filing in compliance withFERC's final rule to address the EDIT resulting from the Act.
Regulatory Developments and Rate Matters
Electric, Natural Gas and Water Utility 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 2020, 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 2019 Form 10-K. COVID-19 Regulatory Dockets: Beginning inMarch 2020 ,Connecticut ,Massachusetts andNew Hampshire established moratoriums on disconnections of residential and commercial customers for non-payment for utility service. InConnecticut , the moratorium for residential customers will remain in place until the declared COVID-19 state of emergency is lifted by the governor or state regulatory commission, but ended onAugust 1, 2020 for commercial customers. InNew Hampshire , the moratorium on residential and commercial utility disconnections ended onJuly 15, 2020 , however PSNH has not yet begun to disconnect customers. InMassachusetts , although several utilities petitioned the state regulatory commission onMay 29, 2020 to extend the moratorium untilSeptember 1, 2020 for commercial customers andNovember 15, 2020 for residential customers, the commission has not acted on that petition, and therefore, the moratorium will remain in place until it is lifted by the governor or commission. InConnecticut , PURA opened a docket to address COVID-19 developments, including issuing orders onMarch 18, 2020 ,April 29, 2020 andMay 15, 2020 that authorized electric, natural gas and water utilities to establish a regulatory asset for COVID-19 uncollectible customer receivable expenses and costs associated with the related orders. PURA'sApril 29, 2020 order, as supplemented onMay 15, 2020 , also allowed the inclusion of working capital costs in the regulatory asset, and authorized electric, natural gas and water utilities to establish a payment plan program designed to assist any customer who requests financial assistance during the COVID-19 pandemic. OnJuly 10, 2020 , PURA denied a request from a coalition of large industrial customers to reduce or suspend certain electric and natural gas charges during the COVID-19 pandemic. 51 -------------------------------------------------------------------------------- InMassachusetts , onApril 17, 2020 , a coalition of electric, natural gas and water utilities submitted a comprehensive proposal to the DPU that would enable the state's utilities to provide flexible payment arrangements to those customers who need financial assistance, while simultaneously maintaining the financial integrity necessary to continue to conduct and finance utility operations through appropriate ratemaking treatment and the establishment of a regulatory asset for COVID-19 related expenses, including uncollectible customer receivable expenses, among other proposals. OnMay 11, 2020 , the DPU opened an inquiry into establishing policies and practices regarding customer assistance and ratemaking measures for electric and natural gas companies in response to the effects of COVID-19. OnJune 26, 2020 , the DPU approved a COVID-19 customer outreach plan. Consistent with the above-described developments inConnecticut andMassachusetts , Eversource continues to work closely with the NHPUC on COVID-19 developments impacting ourNew Hampshire electric and water utilities, including the proposed establishment of flexible payment plan options for those customers who need financial assistance in order to mitigate the size of the uncollectible customer receivable balances that would be borne by all customers in the future.
For information on COVID-19-related regulatory deferrals recorded and COVID-19 charges incurred, see "Impact of COVID-19" included in this Management's Discussion and Analysis.
Storm Event:
OnAugust 4, 2020 , Tropical Storm Isaias caused extensive and catastrophic damage to our electric distribution system and significant customer outages, primarily inConnecticut . In terms of customer outages, this storm was one of the worst inCL&P's history. As the restoration process is currently underway, costs cannot be estimated at this time. Management expects the costs to meet the criteria for specific cost recovery and, as a result, does not expect the storm costs incurred to have a material impact to the results of operations of Eversource orCL&P .CL&P expects to seek recovery of these anticipated deferred storm costs through its applicable regulatory recovery process.
CL&P Rate Suspension: OnJuly 31, 2020 , PURA temporarily suspended itsJune 26, 2020 approval of certain delivery rate components effectiveJuly 1, 2020 , and orderedCL&P to restore rates to those in effect as ofJune 30, 2020 . PURA ordered that it will reexamine the administrative changes to the energy and transmission adjustment clauses provisionally permitted by itsJune 26, 2020 letter. PURA indicated that this was due to the convergence of a number of recent events, including the COVID-19 crisis and its corresponding effect on customer energy usage, as well as the warmer than normal weather in July. PURA intends to reexamine rates to ensure thatCL&P is not over-collecting revenues in the short-term. These rates, the Revenue Decoupling Mechanism Charge, the Transmission Adjustment Clause charge, the Non-Bypassable Federally Mandated Congestion Charge, and the Electric System Improvements Tracker charge, are adjusted periodically and reconciled annually in accordance with the policies and procedures of the PURA, with any differences refunded to, or recovered from, customers. We do not expect the delay in changes of the rates will have a material impact on our financial position, results of operations or cash flows.
NSTAR Gas Rate Case: OnNovember 8, 2019 ,NSTAR Gas filed its application with the DPU, which sought a distribution rate increase of$38.0 million . As part of this filing,NSTAR Gas also proposed to continue its ongoing Gas System Enhancement Program (GSEP), include the GSEP investments since 2015 into base rates, and implement a performance-based ratemaking plan. A final decision from the DPU is expected byOctober 30, 2020 , with rates effectiveNovember 1, 2020 .
Distribution Rates: OnApril 26, 2019 , PSNH filed an application with the NHPUC for approval of a temporary annual base distribution rate increase, effectiveJuly 1, 2019 . OnJune 27, 2019 , the NHPUC approved a settlement agreement that was reached by PSNH, the NHPUC Staff, theOffice of the Consumer Advocate , and another settling party, to implement a temporary annual base distribution rate increase of$28.3 million . Although new rates were implemented onAugust 1, 2019 to customers, the provisions of the temporary base distribution rate increase were effectiveJuly 1, 2019 . The settlement agreement also permits PSNH to recover approximately$68.5 million in unrecovered storm costs over a five-year period beginningAugust 1, 2019 , with debt carrying charges, which is included in the temporary rate increase. OnMay 28, 2019 , PSNH filed an application with the NHPUC for a permanent increase in base distribution rates of approximately$70 million , effectiveJuly 1, 2020 , which includes the temporary rate increase request. The temporary rates are subject to reconciliation based on the outcome of the permanent rate case now before the NHPUC. The NHPUC is permitted up to twelve months to adjudicate the permanent rate application from the date of filing. OnApril 24, 2020 ,Governor Sununu issued an emergency order, which extends the maximum adjudication period by six months, for a maximum of 18 months. A decision by the NHPUC is now expected in the fourth quarter of 2020. Temporary rates will remain in effect with a reconciliation of permanent rates retroactive toJuly 1, 2019 once permanent rates are set. Audit Report of Generation Asset Divestiture-Related Costs: OnMay 15, 2020 , the NHPUC Audit Staff issued a final report on the audit of PSNH's generation asset divestiture-related costs and resulting securitized and stranded costs. The findings in the audit report as well as other aspects of the divestiture process were further investigated by NHPUC Staff through the discovery phase, which was completed in July. Technical sessions and settlement discussions will continue through the third quarter of 2020 and a final decision is expected by the end of 2020. We continue to believe the amounts deferred are probable of recovery. 52 --------------------------------------------------------------------------------
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 ourBoard 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 2019 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 2019 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 theSEC's EDGAR website (http://www.sec.gov/edgar/searchedgar/companysearch.html), at which site Eversource's,CL&P's ,NSTAR Electric's and PSNH'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. 53 -------------------------------------------------------------------------------- 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
For the Three Months Ended June 30 ,
For the Six Months Ended
Increase/ Increase/
(Millions of Dollars) 2020 2019 (Decrease) 2020 2019 (Decrease)
Operating Revenues $ 1,953.1 $ 1,884.5 $ 68.6 $ 4,326.9 $ 4,300.3 $ 26.6
Operating Expenses:
Purchased Power , Fuel and
Transmission 630.1 620.9 9.2 1,506.7 1,595.8 (89.1 )
Operations and Maintenance 332.1 328.0 4.1 674.1 663.6 10.5
Depreciation 240.5 219.1 21.4 476.7 434.0 42.7
Amortization 23.4 38.9 (15.5 ) 73.2 109.9 (36.7 )
Energy Efficiency Programs 115.4 105.8 9.6 263.7 246.0 17.7
Taxes Other Than Income
Taxes 178.0 181.2 (3.2 ) 359.7 365.7 (6.0 )
Impairment of Northern Pass
Transmission - 239.6 (239.6 ) - 239.6 (239.6 )
Total Operating Expenses 1,519.5 1,733.5 (214.0 ) 3,354.1 3,654.6 (300.5 )
Operating Income 433.6 151.0 282.6 972.8 645.7 327.1
Interest Expense 134.2 132.7 1.5 268.9 264.5 4.4
Other Income, Net 30.2 45.9 (15.7 ) 54.3 76.9 (22.6 )
Income Before Income Tax
Expense 329.6 64.2 265.4 758.2 458.1 300.1
Income Tax Expense 75.5 30.8 44.7 167.4 114.2 53.2
Net Income 254.1 33.4 220.7 590.8 343.9 246.9
Net Income Attributable to
Noncontrolling Interests 1.9 1.9 - 3.8 3.8 -
Net Income Attributable to
Common Shareholders $ 252.2 $ 31.5 $ 220.7 $ 587.0 $ 340.1 $ 246.9
Operating Revenues
Sales Volumes: A summary of our retail electric GWh sales volumes, our firm
natural gas MMcf sales volumes, and our water MG sales volumes, and percentage
changes, is as follows:
Electric Firm Natural Gas Water
Sales Volumes (GWh) Sales Volumes (MMcf) Sales Volumes (MG)
Three Months Ended June Percentage Percentage Percentage
30: 2020 2019 Increase/(Decrease) 2020 2019 Increase/(Decrease) 2020 2019 Increase
Traditional 1,789 1,757 1.8 % - - - % 482 459 5.0 %
Decoupled and Special
Contracts (1) 9,658 9,853 (2.0 )% 18,506 18,191 1.7 % 5,185 4,834 7.3 %
Total Sales Volumes 11,447 11,610 (1.4 )% 18,506 18,191 1.7 % 5,667 5,293 7.1 %
Six Months Ended June
30:
Traditional 3,695 3,724 (0.8 )% - - - % 916 910 0.7 %
Decoupled and Special
Contracts (1) 20,123 21,037 (4.3 )% 57,568 63,358 (9.1 )% 9,557 9,212 3.7 %
Total Sales Volumes 23,818 24,761 (3.8 )% 57,568 63,358 (9.1 )% 10,473 10,122 3.5 %
(1) Special contracts are unique to
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.
Weather, fluctuations in energy supply costs, conservation measures (including
utility-sponsored energy efficiency programs), and economic conditions affect
customer energy usage and water consumption. Industrial sales volumes are less
sensitive to temperature variations than residential and commercial sales
volumes. In our service territories, weather impacts both electric and water
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 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 PSNH impact earnings
("Traditional" in the table above). For CL&P , NSTAR Electric , Yankee Gas , NSTAR
Gas and our Connecticut water distribution business, fluctuations in retail
sales volumes do not materially impact earnings due to their respective
regulatory commission-approved distribution revenue decoupling mechanisms
("Decoupled" in the table above). These distribution revenues are decoupled
from their customer sales volumes, which breaks the relationship between sales
volumes and revenues recognized.
54
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Operating Revenues: Operating Revenues by segment increased/(decreased) for the
three and six months ended June 30, 2020 , as compared to the same periods in
2019, as follows:
(Millions of Dollars) Three Months Ended Six Months Ended
Electric Distribution $ 54.4 $ 26.0
Natural Gas Distribution 3.5 (16.8 )
Electric Transmission 27.1 56.2
Water Distribution 1.8 3.2
Other 33.0 69.5
Eliminations (51.2 ) (111.5 )
Total Operating Revenues $ 68.6 $ 26.6
Electric and Natural Gas Distribution Revenues:
Base Distribution Revenues:
• Base electric distribution revenues increased $32.1 million and $63.9 million for the three and six months ended
the same periods in 2019, respectively, due primarily to the impact of a
PSNH temporary base distribution rate increase effective
which includes recovery of storm costs and certain other items that do not
impact earnings,
2020 and
other items that do not impact earnings, and an NSTAR Electric base
distribution rate increase effective January 1, 2020 .
• Base natural gas distribution revenues increased $3.4 million and $12.0
million for the three and six months ended
the same periods in 2019, respectively, due primarily to a base
distribution rate increase at Yankee Gas effective January 1, 2020 .
Tracked Distribution Revenues: Tracked distribution revenues consist of certain
costs that are recovered from customers in retail rates through regulatory
commission-approved cost tracking mechanisms and therefore, recovery of these
costs has no impact on earnings. However, tracked revenues do include certain
incentives earned, return on rate base, and carrying charges that are billed in
rates to customers, which do impact earnings. Costs recovered through cost
tracking mechanisms include, among others, energy supply and natural gas supply
procurement and other energy-related costs, electric retail transmission
charges, energy efficiency program costs, electric restructuring and stranded
cost recovery revenues (including securitized RRB charges), and additionally for
NSTAR Electric , pension and PBOP benefits and net metering for distributed
generation. Tracked revenues also include wholesale market sales transactions,
such as sales of energy and energy-related products into the ISO-NE wholesale
electricity market and the sale of RECs to various counterparties.
Tracked distribution revenues increased/(decreased) for the three and six months
ended June 30, 2020 , as compared to the same periods in 2019, due primarily to
the following:
Electric Distribution Natural Gas Distribution
(Millions of Dollars) Three Months Ended Six Months Ended Three Months Ended Six Months Ended
Retail Tariff Tracked
Revenues:
Energy supply procurement $ (31.3 ) $ (142.3 ) $ (6.9 ) $ (34.9 )
Other distribution
tracking mechanisms 26.6 25.7 12.0 22.8
Wholesale Market Sales
Revenue 21.1 60.7 (4.3 ) (12.9 )
The decrease in energy supply procurement within electric distribution was
driven primarily by lower average prices for the three month period and lower
average sales volumes and lower average prices for the six month period. The
increase in wholesale market sales revenue within electric distribution was due
primarily to a new zero-carbon PPA entered into by CL&P in 2019, as required by
regulation, from which the energy purchased from Millstone Nuclear Power Station
(Millstone) was sold into the market beginning in the fourth quarter of 2019.
Electric Transmission Revenues: Electric transmission revenues increased $27.1
million and $56.2 million for the three and six months ended June 30, 2020 , as
compared to the same periods in 2019, due primarily to continued investment in
our transmission infrastructure and a higher benefit from the annual billing and
cost reconciliation filing with FERC .
Other Revenues and Eliminations: Other revenues primarily include the revenues
of Eversource's service company, most of which are eliminated in consolidation.
Eliminations are also primarily related to the Eversource electric transmission
revenues that are derived from ISO-NE regional transmission charges to the
distribution businesses of CL&P , NSTAR Electric and PSNH that recover the costs
of the wholesale transmission business.
55
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Purchased Power , Fuel and Transmission expense includes costs associated with
purchasing electricity and natural gas on behalf of our customers. These
electric and natural gas supply costs are recovered from customers in rates
through commission-approved cost tracking mechanisms, which have no impact on
earnings (tracked costs). Purchased Power , Fuel and Transmission expense
increased/(decreased) for the three and six months ended June 30, 2020 , as
compared to the same periods in 2019, due primarily to the following:
(Millions of Dollars) Three Months Ended Six Months Ended
Purchased Power Costs $ 47.1 $ 23.1
Natural Gas Costs (10.9 ) (45.8 )
Transmission Costs (3.9 ) (18.2 )
Eliminations (23.1 ) (48.2 )
Total Purchased Power , Fuel and Transmission $ 9.2 $ (89.1 )
The increase in purchased power expense at the electric distribution business for the three months endedJune 30, 2020 , as compared to the same period in 2019, was driven primarily by the impact of energy purchases from the new Millstone PPA, partially offset by lower expense related to the procurement of energy supply resulting from lower average prices. The increase in purchased power expense at the electric distribution business for the six months endedJune 30, 2020 , as compared to the same period in 2019, was driven primarily by the impact of energy purchases from the new Millstone PPA, partially offset by lower expense related to the procurement of energy supply resulting from lower average sales volumes and lower average prices. The decrease in natural gas supply costs at our natural gas distribution business for the three months endedJune 30, 2020 , as compared to the same period in 2019, was due primarily to lower average prices, partially offset by higher average sales volumes. The decrease in natural gas supply costs for the six months endedJune 30, 2020 , as compared to the same period in 2019, was due primarily to lower average sales volumes and lower average prices. The decrease in transmission costs for the three months endedJune 30, 2020 , as compared to the same period in 2019, was primarily the result of a decrease in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers. This was partially offset by an increase in Local Network Service charges, which reflects the cost of transmission service provided by Eversource over our local transmission network and an increase in costs billed by ISO-NE that support regional grid investments. The decrease in transmission costs for the six months endedJune 30, 2020 , as compared to the same period in 2019, was primarily the result of a decrease in the retail transmission cost deferral, and a decrease in costs billed by ISO-NE that support regional grid investments. This was partially offset by an increase in Local Network Service charges, which reflects the cost of transmission service provided by Eversource over our local transmission network. Operations and Maintenance expense includes tracked costs and costs that are part of base electric, natural gas and water distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased/(decreased) for the three and six months endedJune 30, 2020 , as compared to the same periods in 2019, due primarily to the following: Six Months (Millions of Dollars) Three Months Ended Ended Base Electric Distribution (Non-Tracked Costs): Employee-related expenses, including labor and benefits $ (7.4 )$ (9.8 ) Operations-related expenses, including vegetation management, storm restoration, vehicles, and outside services 12.5 4.5 Shared corporate costs (including computer software 5.6 10.8 depreciation at Eversource Service) COVID-19 Costs 5.5 6.7 Other non-tracked operations and maintenance (3.1 ) (1.0 ) Total Base Electric Distribution (Non-Tracked Costs) 13.1 11.2 Base Natural Gas Distribution (Non-Tracked Costs) 1.2 2.4 Water Distribution 0.2 (0.1 )
Tracked Costs (Electric Distribution, Electric Transmission and Natural Gas Distribution)
(3.4 ) 7.3
Other and eliminations:
Eversource Parent and Other Companies - other operations and 18.7 45.1
maintenance
Acquisition costs related to our planned purchase of the 5.4 10.3 assets of CMA Eliminations (31.1 ) (65.7 ) Total Operations and Maintenance $
4.1
Depreciation expense increased for the three and six months endedJune 30, 2020 , as compared to the same periods in 2019, due to higher utility plant in service balances. 56
-------------------------------------------------------------------------------- Amortization expense includes the deferral of energy supply, energy-related costs and other costs that are included in certain regulatory commission-approved cost tracking mechanisms, and the amortization of certain costs as those costs are collected in rates. This deferral adjusts expense to match the corresponding revenues. Energy supply and energy-related costs are recovered from customers in rates and have no impact on earnings. Amortization decreased for the three and six months endedJune 30, 2020 , as compared to the same periods in 2019, due primarily to the under recovery of energy purchases related to the Millstone PPA and deferral of energy supply and energy-related costs atCL&P , partially offset by an increase in storm cost recovery at PSNH. Energy Efficiency Programs expense increased for the three and six months endedJune 30, 2020 , as compared to the same periods in 2019, due primarily to the deferral adjustment atCL&P ,PSNH andNSTAR Gas , which reflects the actual costs of energy efficiency programs compared to the amounts billed to customers and the timing of the recovery of energy efficiency costs. The increase was partially offset by a decrease in spending on certain large energy efficiency projects in 2020 compared to 2019 atNSTAR Electric due to timing. The costs for the majority of the state energy policy initiatives and expanded energy efficiency programs are recovered from customers in rates and have no impact on earnings. Taxes Other Than Income Taxes expense decreased for the three and six months endedJune 30, 2020 , as compared to the same periods in 2019, due primarily to a decrease of$10.7 million and$21.4 million related toCL&P's remittance of energy efficiency funds to theState of Connecticut , respectively. Energy efficiency funds collected from customers afterJuly 1, 2019 are no longer subject to remittance to theState of Connecticut . The decrease is partially offset by an increase in property taxes as a result of higher utility plant balances. Interest Expense increased for the three and six months endedJune 30, 2020 , as compared to the same periods in 2019, due primarily to an increase in interest on long-term debt as a result of new debt issuances ($6.6 million and$13.4 million , respectively) and an increase in interest expense on regulatory deferrals ($1.5 million and$3.2 million , respectively). Partially offsetting these increases were a decrease in interest on notes payable ($6.5 million and$8.8 million , respectively) and an increase in AFUDC related to debt funds and other capitalized interest ($0.4 million and$3.5 million , respectively). Other Income, Net decreased for the three and six months endedJune 30, 2020 , as compared to the same periods in 2019, due primarily to a decrease in equity in earnings related to Eversource's equity method investments ($20.0 million and$21.1 million , respectively), partially offset by an increase related to pension, SERP and PBOP non-service income components ($4.9 million and$10.3 million , respectively). Other Income, Net further decreased for the six month period due to the absence in 2020 of the recognition of the equity component of the carrying charges related to PSNH storm costs recorded in interest income in the first quarter of 2019 ($5.2 million ), and investment losses in 2020, as compared to investment income in 2019 driven by market volatility ($3.1 million ). Income Tax Expense increased for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to higher pre-tax earnings ($5.4 million ), higher state taxes ($3.0 million ), by the absence in 2020 of the impairment of NPT ($35.2 million ), and an increase in items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($2.5 million ), partially offset by an increase in share-based payment excess tax benefits ($0.4 million ) and an increase in amortization of EDIT ($1.0 million ). Income Tax Expense increased for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to higher pre-tax earnings ($12.7 million ), higher state taxes ($8.0 million ), by the absence in 2020 of the impairment of NPT ($35.2 million ), and an increase in flow-through items and permanent differences ($5.1 million ), partially offset by an increase in share-based payment excess tax benefits ($5.1 million ) and an increase in amortization of EDIT ($2.7 million ). 57 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS -
THE CONNECTICUT LIGHT AND POWER COMPANY
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES
The following provides the amounts and variances in operating revenues and
expense line items in the statements of income for
For
the Six Months Ended
CL&P NSTAR Electric PSNH
Increase/ Increase/ Increase/
(Millions of Dollars) 2020 2019 (Decrease) 2020 2019 (Decrease) 2020 2019 (Decrease)
Operating Revenues $ 1,717.1 $ 1,590.1 $ 127.0 $ 1,394.8 $ 1,479.5 $ (84.7 ) $ 531.6 $ 517.3 $ 14.3
Operating Expenses:
Purchased Power and
Transmission 690.1 566.4 123.7 434.7 558.5 (123.8 ) 176.7 199.3 (22.6 )
Operations and
Maintenance 270.2 264.0 6.2 238.1 221.9 16.2 101.1 105.4 (4.3 )
Depreciation 158.2 147.8 10.4 157.9 145.6 12.3 49.1 46.2 2.9
Amortization of
Regulatory Assets, Net 0.9 48.0 (47.1 ) 46.6 45.8 0.8 31.7 19.5 12.2
Energy Efficiency
Programs 67.8 46.8 21.0 125.4 142.6 (17.2 ) 18.2 12.9 5.3
Taxes Other Than Income
Taxes 162.8 178.5 (15.7 ) 99.4 93.1 6.3 40.1 38.0 2.1
Total Operating Expenses 1,350.0 1,251.5 98.5 1,102.1 1,207.5 (105.4 ) 416.9 421.3 (4.4 )
Operating Income 367.1 338.6 28.5 292.7 272.0 20.7 114.7 96.0 18.7
Interest Expense 76.7 72.7 4.0 64.0 56.1 7.9 29.1 28.3 0.8
Other Income, Net 10.4 6.7 3.7 25.4 21.7 3.7 6.8 10.0 (3.2 )
Income Before Income Tax
Expense 300.8 272.6 28.2 254.1 237.6 16.5 92.4 77.7 14.7
Income Tax Expense 64.8 57.3 7.5 56.2 53.9 2.3 21.2 18.1 3.1
Net Income $ 236.0 $ 215.3 $ 20.7 $ 197.9 $ 183.7 $ 14.2 $ 71.2 $ 59.6 $ 11.6
Operating Revenues
Sales Volumes: A summary of our retail electric GWh sales volumes is as follows:
For the Six Months Ended June 30,
2020 2019 Decrease Percentage Decrease
CL&P 9,520 9,953 (433 ) (4.4 )%
NSTAR Electric 10,603 11,084 (481 ) (4.3 )%
PSNH 3,695 3,724 (29 ) (0.8 )%
Fluctuations in retail electric sales volumes at PSNH impact earnings. For CL&P
and NSTAR Electric , fluctuations in retail electric sales volumes do not impact
earnings due to their respective regulatory commission-approved distribution
revenue decoupling mechanisms.
Operating Revenues: Operating Revenues, which consist of base distribution
revenues and tracked revenues further described below, increased $127.0 million
at CL&P and $14.3 million at PSNH, and decreased $84.7 million at NSTAR
Electric , for the six months ended June 30, 2020 , as compared to the same period
in 2019.
Base Distribution Revenues:
•
impact of its base distribution rate increases effective
items that do not impact earnings.
• NSTAR Electric's distribution revenues increased $14.9 million dueprimarily to the impact of its base distribution rate increase effective
• PSNH's distribution revenues increased
impact of its temporary base distribution rate increase effective
2019, which includes recovery of storm costs and certain other items that
do not impact earnings.
Tracked Revenues: Tracked distribution revenues consist of certain costs that
are recovered from customers in retail rates through regulatory
commission-approved cost tracking mechanisms and therefore, recovery of these
costs has no impact on earnings. However, tracked revenues do include certain
incentives earned, return on rate base, and carrying charges that are billed in
rates to customers, which do impact earnings. Costs recovered through cost
tracking mechanisms include, among others, energy supply procurement and other
energy-related costs, retail transmission charges, energy efficiency program
costs, electric restructuring and stranded cost recovery revenues (including
securitized RRB charges), and additionally for NSTAR Electric , pension and PBOP
benefits and net metering for distributed generation. Tracked revenues also
include wholesale market sales transactions, such as sales of energy and
energy-related products into the ISO-NE wholesale electricity market and the
sale of RECs to various counterparties.
58
--------------------------------------------------------------------------------
Tracked revenues increased/(decreased) for the six months ended
CL&P NSTAR Electric
PSNH
Retail Tariff Tracked Revenues: Energy supply procurement$ (46.1 ) $ (79.1 ) $ (17.1 ) CL&P FMCC 40.8 - - Other distribution tracking mechanisms 16.0 (33.2 )
2.1
Wholesale Market Sales Revenue 78.2 (14.0 )
(3.5 )
The decreases in energy supply procurement atCL&P andNSTAR Electric reflect both lower average sales volumes and lower average prices and at PSNH reflect lower average prices for the six months endedJune 30, 2020 , as compared to the same period in 2019. Revenues fromCL&P's other distribution tracking mechanisms include higher earnings from its capital tracker mechanism due to increased electric system improvements.CL&P's wholesale market sales revenue increased due primarily to energy sold in the wholesale market resulting from energy purchased from the new Millstone PPA. Transmission Revenues: Transmission revenues increased$20.0 million atCL&P ,$24.8 million atNSTAR Electric , and$11.4 million at PSNH for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to continued investment in our transmission infrastructure and a higher benefit from the annual billing and cost reconciliation filing withFERC . Eliminations: Eliminations are primarily related to the Eversource electric transmission revenues that are derived from ISO-NE regional transmission charges to the distribution businesses ofCL&P ,NSTAR Electric and PSNH that recover the costs of the wholesale transmission business. The impact of eliminations decreased revenues by$6.1 million atCL&P ,$15.6 million atNSTAR Electric and$3.9 million at PSNH for the six months endedJune 30, 2020 , as compared to the same period in 2019.
These energy supply costs are recovered from customers in rates through commission-approved cost tracking mechanisms, which have no impact on earnings (tracked costs).Purchased Power and Transmission expense increased/(decreased) for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the following: (Millions of Dollars) CL&P NSTAR Electric PSNH Purchased Power Costs$ 149.0 $ (102.3 ) $ (23.6 ) Transmission Costs (17.3 ) (5.9 ) 5.0 Eliminations (8.0 ) (15.6 )
(4.0 )
Purchased Power Costs: Included in purchased power costs are the costs associated with providing electric generation service supply to all customers who have not migrated to third party suppliers and the cost of energy purchase contracts, as required by regulation.
• The increase at
purchases, partially offset by lower expense related to the procurement of
energy supply resulting from lower average sales volumes and lower average
prices.
• The decrease at
to the procurement of energy supply resulting from lower average sales
volumes and lower average prices.
• The decrease at PSNH was due primarily to lower expense related to the
procurement of energy supply resulting from lower average prices.
Transmission Costs: Included in transmission costs are charges that recover the
cost of transporting electricity over high-voltage lines from generation
facilities to substations, including costs allocated by ISO-NE to maintain the
wholesale electric market.
• The decrease in transmission costs at CL&P and NSTAR Electric was due
primarily to a reduction to the retail transmission cost deferral, whichreflects the actual costs of transmission service compared to estimated
amounts billed to customers and a decrease in costs billed by ISO-NE that
support regional grid investments. This was partially offset by an
increase in Local Network Service charges, which reflects the cost oftransmission service provided by Eversource over our local transmission
network.
• The increase in transmission costs at PSNH was primarily the result of an
increase in Local Network Service charges and an increase in costs billed
by ISO-NE that support regional grid investments. This was partially
offset by a decrease in the retail transmission cost deferral.
59-------------------------------------------------------------------------------- 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/(decreased) for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the following: (Millions of Dollars) CL&P NSTAR Electric PSNH Base Electric Distribution (Non-Tracked Costs): Employee-related expenses, including labor and$ 0.7 $ (7.8 )$ (2.7 ) benefits Operations-related expenses, including vegetation management, storm restoration, vehicles, and outside services (0.5 ) 0.6 4.4 Shared corporate costs (including computer software depreciation at Eversource Service) 4.3 5.1 1.4 COVID-19 Costs 2.8 2.8 1.1 Other non-tracked operations and maintenance (3.3 ) 1.4 0.9 Total Base Electric Distribution (Non-Tracked 4.0 2.1 5.1 Costs) Tracked Costs: Transmission expenses (4.7 ) 3.9 (1.3 ) Other tracked operations and maintenance 6.9 10.2 (8.1 ) Total Tracked Costs 2.2 14.1 (9.4 ) Total Operations and Maintenance$ 6.2 $
16.2
Depreciation increased for the six months endedJune 30, 2020 , as compared to the same period in 2019, forCL&P ,NSTAR Electric and PSNH due to higher net plant in service balances. Amortization of Regulatory Assets, Net expense includes the deferral of energy supply, energy-related costs and other costs that are included in certain regulatory-approved cost tracking mechanisms, and the amortization of certain costs as those costs are collected in rates. This deferral adjusts expense to match the corresponding revenues. Energy supply and energy-related costs are recovered from customers in rates and have no impact on earnings. Amortization of Regulatory Assets, Net increased/decreased for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the following:
• The decrease at
purchases related to the Millstone PPA and deferral 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 increase at PSNH was due to an increase in storm cost recovery,
partially offset by the deferral of energy supply and energy related
costs.
Energy Efficiency Programs expense includes costs of various state energy policy
initiatives and expanded energy efficiency programs that are recovered from
customers in rates, most of which have no impact on earnings. Energy Efficiency
Programs expense increased/decreased for the six months ended June 30, 2020 , as
compared to the same period in 2019, due primarily to the following:
• The increase at
reflects actual costs of energy efficiency programs compared to the
estimated amounts billed to customers and the timing of the recovery of
energy efficiency costs.
• The decrease at NSTAR Electric was due to the timing of spending oncertain large energy efficiency projects in 2020, as compared to 2019.
Taxes Other Than Income Taxes increased/decreased for the six months ended
• The decrease at
remittance of energy efficiency funds to the
efficiency funds collected from customers after
subject to remittance to the
partially offset by higher property taxes as a result of higher utility
plant balances.
• The increases at
as a result of higher utility plant balances.
Interest Expense increased for the six months ended
• The increase at
million), partially offset by an increase in AFUDC related to debt funds
(
• The increase at
debt ($7.5 million ), an increase in interest expense on regulatory
deferrals ($3.5 million ), and a decrease in AFUDC related to debt funds
($0.6 million ). Partially offsetting these increases was a decrease in
interest on notes payable ($2.6 million ).
• The increase at PSNH was due to higher interest on long-term debt ($1.9
million ), partially offset by a decrease on RRB interest expense ($0.7
million ) and a decrease in interest expense on regulatory deferrals ($0.6
million ).
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Other Income, Net increased/decreased for the six months ended
• The increase at
PBOP non-service income components (
related to equity funds (
losses in 2020, as compared to investment income in 2019 driven by market
volatility (
• The increase at
SERP and PBOP non-service income components (
in AFUDC related to equity funds ($1.2 million ), partially offset by
higher investment losses driven by market volatility ($0.7 million ).
• The decrease at PSNH was due to the absence in 2020 of the recognition of
the equity component of the carrying charges related to storm costs
recorded in interest income in 2019 (
in 2020, as compared to investment income in 2019 driven by market
volatility (
increase related to pension, SERP and PBOP non-service income components
(
million).
Income Tax Expense increased for the six months ended
• The increase at
million), higher state taxes ($1.0 million ) and by items that impact our
tax rate as a result of regulatory treatment (flow-through items) and
permanent differences (
share-based payment excess tax benefits ($1.8 million ).
• The increase at NSTAR Electric was due primarily to higher pre-tax
earnings (
offset by items that impact our tax rate as a result of regulatory
treatment (flow-through items) and permanent differences (
and an increase in share-based payment excess tax benefits (
• The increase at PSNH was due primarily to higher pre-tax earnings (
million) and higher state taxes (
increase in share-based payment excess tax benefits (
items that impact our tax rate as a result of regulatory treatment
(flow-through items) and permanent differences ($0.2 million ).
EARNINGS SUMMARY
CL&P's earnings increased$20.7 million for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to an increase in transmission earnings driven by a higher transmission rate base, the base distribution rate increases effectiveMay 1, 2020 andMay 1, 2019 , and higher earnings from its capital tracker mechanism due to increased electric system improvements. The earnings increase was partially offset by higher depreciation expense, higher operations and maintenance expense, and higher interest expense.NSTAR Electric's earnings increased$14.2 million for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the base distribution rate increase effectiveJanuary 1, 2020 and an increase in transmission earnings driven by a higher transmission rate base. The earnings increase was partially offset by higher depreciation expense, higher interest expense, and higher property tax expense. PSNH's earnings increased$11.6 million for the six months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the temporary base distribution rate increase effectiveJuly 1, 2019 , and an increase in transmission earnings driven by a higher transmission rate base. The earnings increase was partially offset by the absence of the first quarter 2019 recognition of carrying charges on its 2013 through 2016 storm costs approved for recovery and higher operations and maintenance expense.
LIQUIDITY
Cash Flows:CL&P had cash flows provided by operating activities of$282.9 million for the six months endedJune 30, 2020 , as compared to$345.6 million in the same period of 2019. The decrease in operating cash flows was due primarily to the timing of cash payments made on our accounts payable and the timing of cash collections on our accounts receivable and regulatory tracking mechanisms. Partially offsetting these unfavorable impacts were income tax refunds received of$26.4 million in the first half of 2020, as compared to income tax payments of$3.9 million in the same period in 2019 driven primarily by the deferral of estimated tax payments from the second quarter of 2020 toJuly 2020 under COVID-19 relief legislation.NSTAR Electric had cash flows provided by operating activities of$212.8 million for the six months endedJune 30, 2020 , as compared to$251.5 million in the same period of 2019. The decrease in operating cash flows was due primarily to the timing of collections for regulatory tracking mechanisms primarily related to transmission costs and the timing of cash collections on our accounts receivable. Partially offsetting these unfavorable impacts were the timing of cash payments made on our accounts payable and income tax refunds received of$10.9 million in the first half of 2020, as compared to income tax payments of$10.9 million in the same period in 2019 driven by the deferral of estimated tax payments under COVID-19 relief legislation. 61 -------------------------------------------------------------------------------- PSNH had cash flows provided by operating activities of$118.8 million for the six months endedJune 30, 2020 , as compared to$121.7 million in the same period of 2019. The decrease in operating cash flows was due primarily to income tax payments of$4.8 million in the first half of 2020, as compared to income tax refunds received of$11.8 million in the same period in 2019, the timing of REC inventories and the timing of cash collections on our accounts receivable. Partially offsetting these unfavorable impacts were the temporary base distribution rate increase effectiveJuly 1, 2019 and the timing of cash payments on our accounts payable and other working capital items. For further information onCL&P's ,NSTAR Electric's and PSNH's liquidity and capital resources, see "Liquidity" and "Business Development and Capital Expenditures" included in this Management's Discussion and Analysis of Financial Condition and Results of Operations. 62 -------------------------------------------------------------------------------- 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 forCL&P for the three months endedJune 30, 2020 and 2019 included in this combined Quarterly Report on Form 10-Q: For the Three Months Ended June 30, (Millions of Dollars) 2020 2019 Increase/(Decrease) Operating Revenues $ 817.4 $ 740.8 $ 76.6 Operating Expenses: Purchased Power and Transmission 315.4 246.5 68.9 Operations and Maintenance 134.6 133.4 1.2 Depreciation 79.7 74.6 5.1 Amortization of Regulatory (Liabilities)/Assets, Net (5.7 ) 12.4 (18.1 ) Energy Efficiency Programs 32.3 20.8 11.5 Taxes Other Than Income Taxes 80.0 86.4 (6.4 ) Total Operating Expenses 636.3 574.1 62.2 Operating Income 181.1 166.7 14.4 Interest Expense 38.7 36.9 1.8 Other Income, Net 8.5 2.9 5.6 Income Before Income Tax Expense 150.9 132.7 18.2 Income Tax Expense 33.6 27.9 5.7 Net Income $ 117.3 $ 104.8 $ 12.5 Operating Revenues Sales Volumes:CL&P's retail electric GWh sales volumes were 4,579 and 4,602 for the three months endedJune 30, 2020 and 2019, respectively, resulting in a decrease of 0.5 percent. Fluctuations in retail electric sales volumes do not impact earnings due to its PURA-approved distribution revenue decoupling mechanism.
Operating Revenues: Operating Revenues, which consist of base distribution
revenues and tracked revenues further described below, increased
Base Distribution Revenues:CL&P's distribution revenues increased$9.4 million due primarily to the impact of its base distribution rate increases effectiveMay 1, 2020 andMay 1, 2019 , which includes recovery of storm costs and certain other items that do not impact earnings. Tracked Revenues: Tracked revenues increased/(decreased) for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the following: (Millions of Dollars) Retail Tariff Tracked Revenues Energy supply procurement$ (5.7 ) FMCC 23.4 Other distribution tracking mechanisms 13.4 Wholesale Market Sales Revenue 27.2
Transmission Revenues: Transmission revenues increased
Eliminations: Eliminations are primarily related to transmission revenues derived from ISO-NE regional transmission charges to the distribution business that recover the costs of the wholesale transmission business. The impact of eliminations decreased revenues by$0.6 million .Purchased Power and Transmission expense includes costs associated with purchasing electricity on behalf ofCL&P's customers. These energy supply costs are recovered from customers in PURA-approved cost tracking mechanisms, which have no impact on earnings (tracked costs).Purchased Power and Transmission expense increased/(decreased) for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the following: (Millions of Dollars) Purchased Power Costs$ 77.8 Transmission Costs (6.5 ) Eliminations (2.4 )
63
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The increase in purchased power costs was due primarily to the new Millstone PPA
energy purchases, partially offset by lower expense related to the procurement
of energy supply resulting from lower average prices. The decrease in
transmission costs was due primarily to a reduction to the retail transmission
cost deferral and a decrease in costs billed by ISO-NE that support regional
grid investments. This was partially offset by an increase in Local Network
Service charges.
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/(decreased) for the three
months ended June 30, 2020 , as compared to the same period in 2019, due
primarily to the following:
(Millions of Dollars)
Base Electric Distribution (Non-Tracked Costs):
Operations-related expenses, including vegetation management,
vehicles, and outside services $ (4.4 )
Storm Restoration Costs 2.6
COVID-19 Costs 2.4
Other non-tracked operations and maintenance 1.9
Total Base Electric Distribution (Non-Tracked Costs)
2.5
Total Tracked Costs (1.3 ) Total Operations and Maintenance $
1.2
Depreciation expense increased for the three months ended
Amortization of Regulatory (Liabilities)/Assets, Net expense includes the deferral of energy supply, energy-related costs and other costs that are included in certain regulatory-approved cost tracking mechanisms, and the amortization of certain costs as those costs are collected in rates. This deferral adjusts expense to match the corresponding revenues. Energy supply and energy-related costs are recovered from customers in rates and have no impact on earnings. Amortization of Regulatory (Liabilities)/Assets, Net decreased atCL&P for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the under recovery of energy purchases related to the Millstone PPA and 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. Energy Efficiency Programs expense includes costs of various state energy policy initiatives and expanded energy efficiency programs that are recovered from customers in rates, most of which have no impact on earnings. Energy Efficiency Programs expense increased for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to the deferral adjustment, which reflects the actual costs of energy efficiency programs compared to the estimated amounts billed to customers and the timing of the recovery of energy efficiency costs. Taxes Other Than Income Taxes decreased for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to a decrease of$10.7 million related to the remittance of energy efficiency funds to theState of Connecticut . Energy efficiency funds collected from customers afterJuly 1, 2019 are no longer subject to remittance to theState of Connecticut . The decrease was partially offset by higher property taxes as a result of higher utility plant balances. Interest Expense increased atCL&P for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to an increase in interest expense on long-term debt ($1.6 million ). Other Income, Net increased for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to investment income in 2020, as compared to investment losses in 2019 driven by market volatility ($2.3 million ) and an increase related to pension, SERP and PBOP non-service income components ($1.8 million ). Income Tax Expense increased for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to higher pre-tax earnings ($3.8 million ), higher state taxes ($0.4 million ) and by items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($1.5 million ). EARNINGS SUMMARYCL&P's earnings increased$12.5 million for the three months endedJune 30, 2020 , as compared to the same period in 2019, due primarily to an increase in transmission earnings driven by a higher transmission rate base, the base distribution rate increases effectiveMay 1, 2020 andMay 1, 2019 , and higher earnings from its capital tracker mechanism due to increased electric system improvements. The earnings increase was partially offset by higher depreciation expense, higher operations and maintenance expense, and higher interest expense. 64
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