Eversource 2013 Annual Report Download - page 23

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transmission rates provide for the annual reconciliation and recovery or refund of estimated to actual costs. The financial impacts of
differences between actual and estimated costs are deferred for future recovery from, or refunded to, transmission customers.
FERC Base ROE Complaint
Pursuant to a series of orders involving the ROE for regionally planned New England transmission projects, the FERC set the base
ROE at 11.14 percent and approved incentives that increased the ROE to 12.64 percent for those projects that were in-service by the
end of 2008. Beginning in 2009, the ROE for all regional transmission investment approved by ISO-NE is 11.64 percent, which
includes 50 basis points for joining a regional transmission organization. In addition, certain projects were granted additional ROE
incentives by FERC under its transmission incentive policy. As a result, CL&P earns between 12.64 percent and 13.1 percent on its
major transmission projects, NSTAR Electric earns between 11.64 percent and 12.64 percent on its major transmission projects, and
WMECO earns 12.89 percent on the Massachusetts portion of GSRP.
On September 30, 2011, several New England state attorneys general, state regulatory commissions, consumer advocates and other
parties filed a joint complaint with the FERC under Sections 206 and 306 of the Federal Power Act alleging that the base ROE used in
calculating formula rates for transmission service under the ISO-NE Open Access Transmission Tariff by NETOs, including CL&P,
NSTAR Electric, PSNH and WMECO, is unjust and unreasonable. The complainants asserted that the current 11.14 percent rate,
which became effective in 2006, is excessive due to changes in the capital markets and are seeking an order to reduce the rate, which
would be effective October 1, 2011. In response, the NETOs filed testimony and analysis based on standard FERC methodology and
precedent demonstrating that the base ROE of 11.14 percent remained just and reasonable. The FERC set the case for trial before a
FERC ALJ after settlement negotiations were unsuccessful in August 2012.
Hearings before the FERC ALJ were held in May 2013, followed by the filing of briefs by the complainants, the Massachusetts
municipal electric utilities (late interveners to the case), the FERC trial staff and the NETOs. The NETOs recommended that the current
base ROE of 11.14 percent should remain in effect for the refund period (October 1, 2011 through December 31, 2012) and the
prospective period (beginning when FERC issues its final decision). The complainants, the Massachusetts municipal electric utilities,
and the FERC trial staff each recommended a base ROE of 9 percent or below.
On August 6, 2013, the FERC ALJ issued an initial decision, finding that the base ROE in effect from October 2011 through December
2012 was not reasonable under the standard application of FERC methodology, but leaving policy considerations and additional
adjustments to the FERC. Using the established FERC methodology, the FERC ALJ determined that separate base ROEs should be
set for the refund period and the prospective period. The FERC ALJ found those base ROEs to be 10.6 percent and 9.7 percent,
respectively. The FERC may adjust the prospective period base ROE in its final decision to reflect movement in 10-year Treasury bond
rates from the date that the case was filed (April 2013) to the date of the final decision. The parties filed briefs on this decision with the
FERC, and a decision from the FERC is expected in 2014. Though NU cannot predict the ultimate outcome of this proceeding, in 2013
the Company recorded a series of reserves at its electric subsidiaries to recognize the potential financial impact from the FERC ALJ's
initial decision for the refund period. The aggregate after-tax charge to earnings totaled $14.3 million at NU, which represents reserves
of $7.7 million at CL&P, $3.4 million at NSTAR Electric, $1.4 million at PSNH and $1.8 million at WMECO.
On December 27, 2012, several additional parties filed a separate complaint concerning the NETOs' base ROE with the FERC. This
complaint seeks to reduce the NETOs’ base ROE effective January 1, 2013, effectively extending the refund period for an additional 15
months, and to consolidate this complaint with the joint complaint filed on September 30, 2011. The NETOs have asked the FERC to
reject this complaint. The FERC has not yet acted on this complaint, and management is unable to predict the ultimate outcome or
estimate the impacts of this complaint on the financial position, results of operations or cash flows.
As of December 31, 2013, the CL&P, NSTAR Electric, PSNH, and WMECO aggregate shareholder equity invested in their transmission
facilities was approximately $2.3 billion. As a result, each 10 basis point change in the prospective period authorized base ROE would
change annual consolidated earnings by an approximate $2.3 million.
Transmission Projects
NEEWS: GSRP, the first, largest and most complicated project within the NEEWS family of projects was fully energized on
November 20, 2013. The project involved the construction of 115 kV and 345 kV overhead lines by CL&P and WMECO from Ludlow,
Massachusetts to Bloomfield, Connecticut. This transmission upgrade ensures the reliable flow of power in and around the southern
New England area and enables access to less expensive generation, further reducing the risk of congestion costs impacting New
England customers. The project was fully energized ahead of schedule with a final cost of $676 million, $42 million under the $718
million estimated cost. As of December 31, 2013, CL&P and WMECO have placed $628.2 million in service.
The Interstate Reliability Project, which includes CL&P’s construction of an approximately 40-mile, 345 kV overhead line from Lebanon,
Connecticut to the Connecticut-Rhode Island border in Thompson, Connecticut where it will connect to transmission enhancements
being constructed by National Grid, is the second major NEEWS project. All siting applications have been filed by CL&P and National
Grid. The Connecticut and Rhode Island portions of the project have been approved and a siting approval decision in Massachusetts is
expected in early 2014. On February 12, 2014, the Army Corps of Engineers issued its permit enabling construction on the Connecticut
portion of the project. This is the final permit for the Connecticut portion of the project. NU’s portion of the cost is estimated to be $218
million and the project is expected to be placed in service in late 2015.