As a result of Eversource Energy’s (NYSE:ES) robust capital program, the company’s transmission rate base was about $5.2bn at the end of 2015, compared with $4.9bn at the end of 2014, Jim Judge, Eversource executive vice president and CFO, said on Feb. 5 during the company’s 4Q15 earnings call.
“Those benefits were partially offset by FERC’s decision last year to lower the base transmission [return on equity (ROE)] in New England to 10.57% from the previous 11.14%, and to cap our ROEs on any reliability project, regardless of previously approved incentives, at 11.74%,” he said. “As we’ve said in the past, those changes have reduced our … transmission ROE, including incentives, to approximately 11.5%.”
Eversource’s transmission capital expenditures totaled $807m in 2015, which is about $67m above the company’s projection at this time last year, he said, adding that Eversource now shows nearly $5bn of electric transmission investment from 2015 through 2019.
“As we do every year, we have again identified transmission investments that we didn’t have in the plan one year ago,” he said. “We’ve added about $800m of new investment, $200m of that increase involves our previously announced increase in the Northern Pass project. We are projecting transmission capital expenditures of $911m in 2016, $880m of which will be spent on reliability related transmission projects at our four regulated electric companies.”
Two of the largest initiatives are the Greater Boston and Greater Hartford projects, which involve dozens of individual projects, he said. Eversource expects little capital spending on Northern Pass in 2016, but considerable expenditures in 2017 and 2018, he said.
“These capital expenditure projections do not reflect us spending on the Clean Energy Connect project …, which we expect to contribute to earnings growth from 2018 to 2021,” he said, referencing a new 25-mile transmission line.
He added, “Because we are in a competitive bidding process, we are not providing a total cost of the Clean Energy Connect project or a year-by-year estimate to capital expenditures.”
Also speaking on the call, Lee Olivier, Eversource executive vice president for Enterprise Energy Strategy and Business Development, noted that along with Northern Pass, the other project that Eversource bid into a joint state request for proposals (RFP) for clean energy is the Clean Energy Connect, which involves the construction of the new 600 MW line between a transmission substation that Eversource owns in Massachusetts, and a transmission substation in New York.
That project, which is being developed by Eversource, Brookfield, Iberdrola and EDP Renewables, will use HVDC converters to ensure deliverability into New England, he said.
“We have not been specific about the cost, but our share, which is entirely a transmission investment, will be more than $400m,” he said. “If approved, as part of the RFP, we expect this project to be built in the 2018 through 2020 timeframe, and for our investment to earn returns consistent with FERC-regulated transmission investments.”
Each of the three states involved in the RFP – Massachusetts, Connecticut and Rhode Island – will go through a process to select the winning bids and submit them to regulators for approval, Olivier said.
“We expect contracts with the successful bidders to be executed by the end of the third quarter and for the contracts to be approved by the end of this year,” he said. “We believe that the two projects we are jointly proposing represent the region’s best options for low-cost, firm, reliable and non-carbon-emitting resources.”
Discussing Eversource’s capital program, excluding the Clean Energy Connect project and the Access Northeast project, which the company is working on with Spectra Energy and National Grid plc’s National Grid, from 2016 through 2019, Judge said that Eversource expects to invest $9.2bn in New England’s energy infrastructure, including $3.9bn in transmission. Electric and natural gas distribution capital total about $1.2bn every year during that period, he said.
Judge also noted that about $2.5bn of the $3.6bn on rate base growth over the next four years is expected to come from electric transmission.
“By the end of 2019, we expect that electric transmission will comprise 42% of our total rate base, and if our Access Northeast and Clean Energy Connect investments were included, it puts us at nearly 50% FERC-regulated company by the end of 2019,” he said. “We believe that this rising percentage of FERC investments will result in an increase in ROE for Eversource Energy as a whole.”
He also noted that despite declining oil prices, Eversource added 11,415 new natural gas customers in 2015, which is about 7.5% ahead of 2014, and 4% ahead of the company’s target for the year.
“[W]e expect new heating customer growth to continue to accelerate over our forecast period and eventually reach about 16,000 per year, significantly aided by legislatively endorsed initiatives in both Connecticut and Massachusetts,” he said. “In 2016, we’re projecting approximately 12,500 new natural gas heating customers.”
Thomas May, Eversource chairman, president and CEO, said during the call that the company “already converted 1,000 [customers] in January.”
Among other things, Judge discussed the ROE complaints before FERC, noting, “In December, the FERC administrative law judge [(ALJ)] handling the second and third New England transmission ROE complaints requested some additional briefing on an aspect of the second complaint, so an initial recommendation by that ALJ was delayed from December 2015 to the end of March 2016.”
Eversource now expects to receive a decision from FERC on the two complaints in either late 2016, or early 2017, he said.
The company has no general rate cases pending for any of its six regulated distribution utilities and while Eversource expects rate case activity next year, it expects that any decisions would not impact its financial results until the end of 2017 or early 2018.
Updates on projects
Olivier said that the New Hampshire Site Evaluation Committee (SEC) last December determined that the Northern Pass project application is complete and started the formal review process. As part of that process, the SEC held five public information sessions on the project in January, and will hold another round of public hearings later this quarter, he said.
“[W]e expect the New Hampshire SEC to vote on the Northern Pass consistent with its current schedule, which concludes on Dec. 19,” he said. “In parallel, the U.S. Department of Energy [(DOE)] will host a series of four public hearings on its draft environmental impact statement, or EIS, on Northern Pass the week of March 7. Two of them will be held jointly with the New Hampshire [SEC]. Written comments on the draft EIS are due to the DOE by April 4. We expect the DOE to finalize the EIS in the second half of this year, and anticipate a presidential permit issued soon after the New Hampshire SEC process has concluded.”
Olivier also noted that Eversource’s new capital expenditure forecast reflects the revised $1.6bn project cost that the company announced in October, and it allows the vast majority of the construction to take place in 2017 and 2018.
He said that Northern Pass will provide to the host state of New Hampshire significant benefits, and that the company’s Forward New Hampshire plan remains in place. Among those benefits, he said that the company anticipates $80m per year in energy savings to New Hampshire, a commitment to hire New Hampshire workers first, a $200m fund to support economic development and community initiatives.
Olivier also discussed the $3bn Access Northeast project that Eversource plans to build with its partners, Spectra Energy and National Grid. That project would upgrade the existing Algonquin pipeline and to add 6.8 billion cubic feet of LNG storage in Massachusetts to bring firm gas supplies to power generators in New England.
“Our share of the Access Northeast project is 40%,” he said. “FERC has accepted the pre-filing we made last year and we’re continuing to submit information on the project to FERC as part of that process.”
Olivier said that a formal application filing is expected to be made late this year to meet the initial in-service date of 2018.
Judge noted that the FERC application indicates that elements of the Access Northeast project will be phased into service between late 2018 and 2021.
Olivier said that following an RFP last fall that attracted a number of bids, NSTAR Electric and Western Massachusetts Electric filed with Massachusetts state regulators last December seeking approval of contracts for pipeline and storage capacity with Access Northeast. Those two utilities asked for a decision by Oct. 1, he said. National Grid’s two Massachusetts electric distribution companies, Massachusetts Electric and Nantucket Electric, made a similar filing with state regulators in January, he said.
Olivier said that once approved by the regulators, those contracts will account for nearly 45% of the Access Northeast targeted capacity.
Among natural gas happenings in other New England states, Olivier also noted that New Hampshire state regulators in January issued an order in which they accepted a staff report that concluded that the regulators had sufficient authority to approve electric distribution contracts for natural gas supplies if those contracts are shown to be in the customers’ interest.
“We expect that the state processes will be concluded this fall so that we can file our formal application with FERC before the end of 2016,” he said. “We continue to believe that Access Northeast offers an excellent near-term and long-term answer to the region’s intensifying winter energy supply challenges.”
Eversource on Feb. 4 reported full-year 2015 earnings of $878.5m, or $2.76 per share, compared with full-year 2014 earnings of $819.5m, or $2.58 per share. Full-year results included after-tax integration costs of $15.8m in 2015, and $22.1m in 2014, the company added. Excluding those integration costs, the company said that it earned $894.3m, or $2.81 per share, in 2015, and $841.6m, or $2.65 per share, in 2014.
In 4Q15, Eversource said that it earned $181.8m, or 57 cents per share, compared with earnings of $221.6m, or 69 cents per share, in 4Q14. Excluding integration costs, Eversource said that it earned $189.8m, or 60 cents per share, in 4Q15, compared with earnings of $230.3m, or 72 cents per share, in 4Q14.