Eversource 2013 Annual Report Download - page 122

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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, 2013:
Maximum Exposure
Subsidiary
Description
(in millions)
Expiration Dates
Various
Surety Bonds
$
69.2
2014 - 2016 (1)
Various
NE Hydro Companies' Long-Term Debt
$
3.5
Unspecified
NUSCO and RRR
Lease Payments for Vehicles and Real Estate
$
17.7
2019 and 2024
(1) Surety bond expiration dates reflect termination dates, the majority of which will be renewed or extended.
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 are downgraded.
E. 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 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.
F. DPU Safety and Reliability Programs - CPSL
Since 2006, NSTAR Electric has been recovering incremental costs related to the DPU-approved Safety and Reliability Programs.
From 2006 through 2011, cumulative costs associated with the CPSL program resulted in an incremental revenue requirement to
customers of approximately $83 million. These amounts included incremental operations and maintenance costs and the related
revenue requirement for specific capital investments relative to the CPSL programs.
On May 28, 2010, the DPU issued an order on NSTAR Electric’s 2006 CPSL cost recovery filing (the May 2010 Order). In October
2010, NSTAR Electric filed a reconciliation of the cumulative CPSL program activity for the periods 2006 through 2009 with the DPU in
order to determine a proposed rate adjustment. The DPU allowed the proposed rates to go into effect January 1, 2011, subject to final
reconciliation of CPSL program costs through a future DPU proceeding. In February 2013, NSTAR Electric updated the October 2010
filing with final activity through 2011. NSTAR Electric recorded its 2006 through 2011 revenues under the CPSL programs based on
the May 2010 Order.