Eversource Energy’s (NYSE:ES) capital expenditures totaled about $1bn in the first half of 2017, up about $100m from the first half of 2016, Phil Lembo, Eversource executive vice president and CFO, said on July 28 during the company’s 2Q17 earnings call.
“Transmission investments totaled approximately $375m in the first half of 2017, and we continue to target nearly $1bn in transmission investments for the year,” he said.
Noting that the company continues to make progress on a number of major reliability transmission projects, Lembo said that the Northern Pass Transmission project accounts for $21m of the company’s transmission capital invested this year, and that Eversource expects “that number to rise considerably beginning next year.”
Eversource now anticipates that the project’s in-service date will occur in the second half of 2020, and expects “that the vast majority of the work on Northern Pass will be completed in ’18 and ’19, but we do expect” that a certain amount of investment in the project will move into 2020.
The company expects to offset the lower level of expenditures in Northern Pass in 2018, with increased investments in electric resiliency programs, natural gas infrastructure capital, and natural gas expansion projects, he said.
Also speaking on the call was Lee Olivier, Eversource executive vice president, Enterprise Energy Strategy and Business Development, who noted that the New Hampshire Site Evaluation Committee (SEC) has completed more than 20 days of final evidentiary hearings for the project, with remaining hearings scheduled to run through September.
“We consider the New Hampshire SEC schedule to be supportive of the project receiving all of its approvals necessary to commence construction in early 2018,” he said.
In addition to the SEC permit, the project also needs to secure a presidential permit from the U.S. Department of Energy (DOE), which, according to its website, expects to issue a final environmental impact statement in August, positioning DOE to issue a presidential permit by the end of this year, Olivier said.
“We continue to expect Hydro-Quebéc to receive its final national and provincial permits for the Canadian portion of the project later this year,” he said, noting that the New Hampshire Public Utilities Commission has already reviewed a number of items related to Northern Pass.
For instance, the commission last year authorized Northern Pass Transmission to operate as a utility in the state, and in June, the commission granted licenses to Northern Pass Transmission to cross public waters and lands, he said. In addition, the New Hampshire Department of Transportation and the state Department of Environmental Services have approved the necessary permits to build the project, subject to final approval by the SEC, he said.
If the project receives its final permits by the end of this year, then Eversource expects that it “can complete the project in the third quarter of 2020,” Olivier said. “At that time, Northern Pass would be fully constructed and operational testing would commence, allowing the project to enter service prior to the critical 2020-2021 winter period.”
According to a July 27 statement, Eversource and Hydro-Quebéc have submitted two proposals – a 100% hydropower option, as well as a hydropower and onshore wind combination option – in response to the Massachusetts Clean Energy solicitation, with both of those proposals to use the Northern Pass Transmission project to deliver clean energy to the New England grid, interconnecting in New Hampshire.
The solicitation is the result of a law passed last year by Massachusetts legislators to provide for new sources of clean energy for decades into the future, the statement noted.
The 100% hydropower option included in the Northern Pass bid would deliver 1,090 MW of hydroelectric energy and the associated environmental attributes from Hydro-Quebéc’s existing resources, according to the statement. The second option would combine predominantly firm hydropower from Hydro-Quebéc with new wind generation located in Quebéc, provided by a partnership of wind developers, Gaz Métro and Boralex, the statement noted, adding that the wind power would be backed by hydropower and includes Class I renewable energy certificates. Both options guarantee year-round firm delivery of 1,090 MW of clean energy, the statement noted.
Olivier said during the call, “We believe that this bid will be extremely competitive in the Massachusetts solicitation due to the advanced stage of our project development.”
He also noted that separately, a request for proposals (RFP) exclusively for offshore wind was issued to the market at the end of June, with bids due Dec. 20.
“The RFP calls for interested bidders to submit a conforming proposal for 400 MW,” he said. “It also stated alternative bids of up to 800 MW would be considered if bidders can show that a larger project would provide significant net economic benefits to customers. Bidders can also submit an alternative bid for as little as 200 MW.”
Bay State Wind, a 50/50 partnership between Eversource and DONG Energy will bid into that RFP, he said.
Olivier noted that other states are also expanding their solicitation for clean energy.
New York Gov. Andrew Cuomo, for instance, “announced a goal of procuring 2,400 MW of offshore wind, with the first RFP expected early next year. Rhode Island Gov. Gina Raimondo has announced a goal of procuring 1,000 MW of clean energy by 2020,” he said. “In Connecticut, Gov. [Dannel] Malloy signed Public Act 17-144 last month, allowing offshore wind to be considered as part of a new RFP for clean energy resources, which would also include utility rate based fuel cells.”
He further noted that the Connecticut Department of Energy and Environmental Protection recently published a draft of the state’s updated Comprehensive Energy Strategy, which focuses on such major themes as decreasing carbon emissions, increasing the supply of renewable energy, and supporting grid modernization.
“We believe Eversource Energy is uniquely positioned to support each of these state policy initiatives,” he said, noting that the federal Bureau of Ocean Energy Management recently issued to Bay State Wind the first approval of an offshore wind site assessment plan in the United States.
Return on equity
Lembo noted that the United States Court of Appeals for the District of Columbia Circuit in April vacated FERC’s 2014 order that lowered the base return on equity (ROE) for the New England Transmission Owners from 11.14% to 10.57%.
Now, before FERC “is not only the vacated order from that complaint 1, but the [administrative law judge, or] ALJ recommendations from complaints 2 and 3, which have not yet been decided,” he said. “So, it’s unclear whether FERC will issue orders in all three complaints at the same time, or what the timing is of when this will occur.”
Lembo said that Eversource has been conferring with other New England transmission owners about the appropriate billing for transmission service in New England, in light of the April court decision and the four pending complaints.
In June, the region’s transmission owners, including Eversource, filed with FERC “to revert back to the last approved ROE that was approved at 11.14%,” he said. “In the filing, the transmission owners proposed that the rate be effective on June 8 and billing on the new rate to customers would not start until 60 days after FERC has a quorum, and, as we all know, that has not occurred at this time.”
As TransmissionHub reported, FERC currently has only one commissioner, Acting Chairman Cheryl LaFleur following the departures of former Commissioner Colette Honorable and former Chairman Norman Bay.
The financial results that Eversource recently reported “still reflect the 10.57% ROE and the 11.74% cap on incentives that was vacated by the court,” Lembo said. “Our transmission revenues are based on what we bill to customers. Therefore, there will be no change in our transmission revenues until our rates are changed prospectively.”
Eversource on July 27 reported earnings of $230.7m, or 72 cents per share, in 2Q17, compared with earnings of $203.6m, or 64 cents per share, in 2Q16. In the first half of 2017, Eversource earned $490.2m, or $1.54 per share, compared with earnings of $447.8m, or $1.41 per share, in the first half of 2016, the company said.
Eversource also noted that its transmission segment earned $96.4m in 2Q17 and $190.6m in the first half of 2017, compared with earnings of $92.5m in 2Q16 and $178.2 million in the first half of 2016. The improved results were primarily due to an increased level of investment in Eversource’s transmission system, partially offset by a lower level of revenue in 2017 related to annual reconciliations under Eversource’s transmission tariffs, the company said.