8-KOther Events

EVERSOURCE ENERGY 8-K Report, Corporate Update (Jun 25, 2014)

Filed June 25, 2014For Securities:ES

Summary

This 8-K filing by Northeast Utilities (NU), the parent company of Eversource Energy, reports on a significant development concerning a Federal Energy Regulatory Commission (FERC) proceeding related to transmission service rates. Specifically, it addresses an ongoing complaint regarding the base Return on Equity (ROE) for New England Transmission Owners (NETOs), which include several of NU's subsidiaries. The core issue is a challenge to the existing 11.14% base ROE, which complainants argue is excessive given current capital market conditions and should be reduced. The filing highlights a recent FERC order on June 19, 2014, which set a tentative base ROE of 10.57% for both past refund periods and future periods. While this is a reduction from the previous rate, it falls within a broader zone of reasonableness set by the FERC (7.03% to 11.74%). Importantly, NU anticipates a negative impact on its earnings due to this development, stating it will record a charge of approximately $0.10 per share in the second quarter of 2014, reflecting reserves established at its electric subsidiaries.

Key Highlights

  • 1Northeast Utilities (NU) is addressing a FERC complaint challenging the base Return on Equity (ROE) for its transmission subsidiaries.
  • 2The original base ROE in question was 11.14%, established in 2006.
  • 3Complainants argued the ROE was unjust and unreasonable due to changes in capital markets.
  • 4On June 19, 2014, FERC issued an order setting a tentative base ROE of 10.57% for both refund and prospective periods.
  • 5This tentative ROE falls within a FERC-defined zone of reasonableness between 7.03% and 11.74%.
  • 6NU will record an estimated charge of $0.10 per share to earnings in Q2 2014 to establish reserves related to this proceeding.
  • 7A second, separate complaint seeking to extend the refund period was also addressed by FERC, with settlement discussions initiated.

Frequently Asked Questions

The main issue is a Federal Energy Regulatory Commission (FERC) proceeding concerning a complaint against the base Return on Equity (ROE) used for transmission services provided by Northeast Utilities' (NU) subsidiaries. Complainants argue that the existing 11.14% ROE is too high and should be reduced.

On June 19, 2014, FERC issued an order setting a tentative base ROE of 10.57% for both the refund period (retroactive) and the prospective period. This rate is within a broader range (zone of reasonableness) of 7.03% to 11.74% determined by FERC.

NU expects a negative financial impact and will record a charge to earnings of approximately $0.10 per share in the second quarter of 2014. This charge is to establish reserves at its electric subsidiaries in anticipation of the outcome of this proceeding, particularly the second complaint.

While a reduction from the previous 11.14%, the 10.57% ROE is at the higher end of the FERC's zone of reasonableness. This suggests that NU's subsidiaries will still earn a significant return, though less than previously anticipated. The company's decision to book a charge indicates they are preparing for potential financial adjustments related to this and a subsequent complaint.