Eversource 2012 Annual Report Download - page 132

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The following table summarizes NU's guarantees of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, as of
December 31, 2012:
Maximum
Exposure
Subsidiary
Description
(in millions)
Expiration Dates
Various Surety Bonds $ 32.8
January 2013 -
November 2015 (1)
Various
NE Hydro Companies' Long-Term Debt
$
5.6
Unspecified
NUSCO and RRR
Lease Payments for Vehicles and Real Estate
$
20.1
2019 and 2024
NU Enterprises
Surety Bonds, Insurance Bonds and Performance Guarantees
$
67.4
(2)
(2)
(1) Surety bond expiration dates reflect bond termination dates, the majority of which will be renewed or extended.
(2) The maximum exposure includes $13.5 million related to performance guarantees on wholesale purchase contracts, which expire
December 31, 2013. Also included in the maximum exposure is $1 million related to insurance bonds with no expiration date that
are billed annually on their anniversary date. The remaining $52.9 million of maximum exposure relates to surety bonds covering
ongoing projects, which expire upon project completion.
Many of the underlying contracts that NU parent guarantees, as well as certain surety bonds, contain credit ratings triggers that would
require NU parent to post collateral in the event that the unsecured debt credit ratings of NU, or NSTAR LLC, as applicable, are
downgraded below investment grade.
E. DPU Penalties for 2011 Storm Responses (NSTAR Electric, WMECO)
On December 11, 2012, in separate orders issued by the DPU, NSTAR Electric and WMECO received penalties related to the
investigation into the electric utilities’ responses to Tropical Storm Irene and the October 2011 snowstorm. The DPU ordered penalties
of $4.1 million and $2 million for NSTAR Electric and WMECO, respectively, stating that NSTAR Electric failed to communicate and
prioritize restoration efforts in both storms and WMECO failed to prioritize restoration efforts in the October snowstorm. These
penalties were ordered to be assessed in the form of customer credits in 2013. On December 28, 2012, NSTAR Electric and WMECO
each filed appeals with the SJC arguing the DPU penalties should be vacated. In their filings, NSTAR Electric and WMECO stated that
the DPU’s decision to assess the penalties was in error as the assessments were arbitrary and not supported by substantial evidence.
While we believe that NSTAR Electric and WMECO should ultimately prevail upon appeal, we are unable to conclusively state that a
favorable outcome is probable. Therefore, NSTAR Electric and WMECO recorded $4.1 million and $2 million, respectively, in pre-tax
penalty charges as of December 31, 2012.
F. FERC Base ROE Complaint
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 New England transmission
owners, 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 September 30, 2011 through December 31, 2012. In response, the New England
transmission owners filed testimony and analysis based on standard FERC methodology and precedent, demonstrating that the base
ROE of 11.14 percent remained just and reasonable.
On May 3, 2012, the FERC issued an order establishing hearing and settlement procedures for the complaint. The settlement
proceedings were subsequently terminated, as the parties had reached an impasse in their efforts to reach a settlement. In August
2012, the FERC trial judge assigned to the complaint established a schedule for the trial phase of the proceedings. Complainant
testimony supporting a base ROE of 9 percent was filed on October 1, 2012. Additional testimony was filed on October 1, 2012 by a
group of Massachusetts municipal electric companies, which recommended a base ROE of 8.2 percent. The New England
transmission owners filed testimony and analysis on November 20, 2012, demonstrating they believe that the current base ROE
continues to be just and reasonable. On January 18, 2013, the FERC trial staff filed testimony and analysis recommending a base
ROE of 9.66 percent based on the midpoint of their analysis with a range of reasonableness of 6.82 percent to 12.51 percent. Hearings
on this complaint are scheduled for May 2013 and a trial judge’s recommended decision is due in September 2013. A decision from
FERC commissioners is expected in 2014. Refunds to customers, if any, as a result of a reduction in the NU transmission companies’
base ROE would be retroactive to October 1, 2011.
On December 27, 2012, several additional parties filed a separate complaint concerning the New England transmission owners' ROE
with the FERC. This new complaint seeks to reduce the New England transmission owner’s base transmission ROE effective
January 1, 2013, and to consolidate this new complaint with the joint complaint filed on September 30, 2011. The New England
transmission owners have asked the FERC to reject this new complaint. The FERC has not yet acted on this request.
Management cannot at this time predict the ultimate outcome of this proceeding or the estimated impacts on CL&P’s, NSTAR Electric’s,
PSNH’s, or WMECO’s respective financial position, results of operations or cash flows.