Eversource 2008 Annual Report Download - page 22

Retail electric sales for 2008 were lower than 2007.
The 2008 weather normalized decrease of 2.6 percent
reflects the fact that our customers are responding to the
increased costs of energy and to the adverse economic
conditions of our region and the nation. We believe
customers will continue to respond to these factors
and to the recent disruptions and ongoing uncertainty
in the financial markets, and have estimated a decline
of approximately 1 percent in weather normalized
electric sales in 2009, which is reflected in our earnings
guidance. We experienced positive growth in our weather
normalized electric sales of 1.3 percent for January 2009.
Changes in electric sales, however, have less of an
impact on the earnings of the electric companies than
in prior years because non-distribution rate revenues,
which represented approximately 76 percent of electric
company revenues in 2008, are tracked and reconciled to
actual costs. Non-distribution rate revenues include the
energy, stranded cost, retail transmission and federally
mandated congestion costs (FMCC) charges and other
components of rates. For non-distribution rate revenues,
the only impact to earnings is from carrying costs on
over- or underrecoveries. With respect to the distribution
revenues, about two-thirds of CL&P’s and WMECO’s
revenues and about one-half of PSNH’s revenues are
recovered through charges that are not dependent on
overall sales volumes, such as the customer charge and the
demand charge.
In addition to the manner in which the distribution
rate revenues are recovered from customers, there are
other reasons why changes in 2008 sales as compared
to 2007 had less of an impact on our earnings. For
example, some of the decline in 2008 industrial sales was
due to qualified distributed generation in Connecticut
replacing our distribution. Under Connecticut statute,
CL&P is entitled to recover this lost distribution revenue
through its FMCC charge. Also, some of the decline
in 2008 commercial sales was attributable to certain
generators who, in previous periods, took station service
from CL&P as retail commercial customers but now are
served directly by ISO-NE as wholesale customers. These
customers are interconnected to the transmission system
and do not contribute to distribution revenues, therefore
the loss of load from these customers in 2008 did not
impact our earnings.
Firm natural gas sales in 2008 were higher than 2007.
The 2008 results reflect warmer weather in the first
quarter, colder weather in the fourth quarter and an
increase in industrial sales primarily due to customer-
owned gas-fired distributed generation and favorable
natural gas prices relative to oil. Similar to our electric
distribution companies, Yankee Gas recovers a significant
portion of its distribution revenues, approximately
40 percent, through charges that are not dependent
on usage. Our 2009 earnings guidance reflects an
estimated increase in weather normalized firm gas sales of
approximately 2.5 percent.
Consistent with our sales results in 2008, our
uncollectibles expense has also been influenced by the
adverse economic conditions of our region. Our write-os
as a percentage of revenues increased in 2008 for all our
distribution companies. Similar to changes in our retail
sales, changes in our uncollectibles expense have less of
an impact on earnings of our distribution companies than
in prior years. For example, a portion of the uncollectibles
expense for each of the electric distribution companies
is allocated to its respective energy supply rate and
recovered as a tracked expense. CL&P, PSNH and WMECO
implemented their trackers for this allocated portion
of uncollectibles expense on February 1, 2008, July 1,
2007, and January 1, 2007, respectively. Additionally, for
CL&P and Yankee Gas, write-os attributable to hardship
customers are tracked and fully recovered in the System
Benefits Charge (SBC) as uncollectible expense and
in the base distribution rate as amortization expense,
respectively. In 2008, our total uncollectibles expense
was approximately $75 million or $25 million higher than
2007. Over $13 million of the increase was attributable
to hardship accounts at CL&P. From a nontracked
uncollectibles expense perspective, the 2008 expense
was approximately $9 million greater than we originally
expected. In 2009, we expect our total uncollectibles
expense will be slightly higher than 2008 and the
nontracked portion of uncollectibles expense to increase
to approximately $30 million in 2009. This anticipated
increase of 10 percent or $3 million is reflected in our 2009
earnings guidance.
Competitive Businesses: NU Enterprises, which continues
to manage to completion its remaining wholesale
marketing contracts and manages its energy services
activities, earned $13.1 million in 2008, or $0.08 per
share, compared with earnings of $11.7 million in 2007,
or $0.08 per share, and $211.3 million, or $1.37 per
share, in 2006. The 2008 results include a net after-tax
reduction of earnings of $3.2 million associated with the
implementation of Statement of Financial Accounting
Standards (SFAS) No. 157, “Fair Value Measurements.”
Competitive business earnings in 2008 also included
positive mark-to-market after-tax results of $4.3 million
associated with Select Energy, Inc.’s (Select Energy)
wholesale marketing contracts, as compared to negative
mark-to-market after-tax results of $3.8 million in 2007.
The higher competitive business earnings in 2006 were
attributable to the $314 million after-tax gain on the sale
of the competitive generation business, partially oset
by $70.3 million of losses at the retail marketing business,
which was sold on June1, 2006.
NU Parent and Other Companies: NU parent and other
companies recorded net expenses of $41.4 million, or
$0.26 per share, in 2008, compared with net income of
$6.1 million, or $0.04 per share, in 2007, and net income of
$2 million, or $0.01 per share, in 2006. The net expenses
in 2008 primarily relate to the payment by NU parent to
Con Edison of $49.5 million in March 2008 as part of a
comprehensive settlement of litigation initiated in 2001
over the proposed but unconsummated merger between
the two companies. The decrease in net income from
2007 was also the result of reduced interest income for
NU parent on a significantly lower level of cash in 2008.
NU parent carried a high level of cash in the first quarter
of 2007 after the sale of our competitive generation
businesses on November 1, 2006. Most of that cash was
either invested in the regulated companies in 2007 to
support those companies’ capital programs or used to pay
taxes due in March 2007 on the competitive generation
business sales. Additionally, NU parent interest expense
increased in 2008 due to the replacement of $150 million
of 3.3 percent senior notes that matured on June 1, 2008
with $250 million of 5.65 percent senior notes.
Future Outlook
Earnings Guidance: A summary of our projected 2009
EPS by segment, which also reconciles consolidated fully
diluted EPS to the non-GAAP measure of EPS by segment,
is as follows:
2009 EPS Range
(Approximate amounts) Low High
Fully Diluted EPS (GAAP) $ 1.80 $ 2.00
Regulated companies:
Distribution segment $ 1.00 $ 1.10
Transmission segment 0.85 0.90
Total regulated companies 1.85 2.00
Competitive businesses 0.00 0.05
NU parent and other companies (0.05 ) (0.05 )
Fully Diluted EPS (GAAP) $ 1.80 $ 2.00
This projection assumes the issuance of between $250
million and $300 million of additional equity in mid-
2009. Our distribution rates are based in part on historic
operation and maintenance costs, including pension and
other postretirement costs and uncollectible expense.
Primarily as a result of a significant decline in our pension
assets due to current financial market conditions, we
expect that higher pension costs will result in a $0.10 per
share negative impact on earnings in 2009, as compared
with 2008. The distribution segment earnings forecast
noted above reflects our expectations of lower electric
sales and higher pension and uncollectible expense than
what we experienced in 2008.
21