Business Context and Reporting Period
This Form 8-K, dated March 24, 2008, is filed by Northeast Utilities and its subsidiaries (The Connecticut Light and Power Company, Public Service Company of New Hampshire, and Western Massachusetts Electric Company). The report addresses a Federal Energy Regulatory Commission (FERC) order on rehearing regarding returns on equity (ROE) and incentives for regional transmission projects in New England.
Key Financial Metrics
The filing details regulatory adjustments to the Return on Equity (ROE) for transmission owners rather than reporting operational financial results for a specific period. Key metrics include:
- Base ROE Adjustment: Increased from 10.2% to 10.4%.
- ROE for RTO Members: Increased from 10.7% to 10.9% (pre-2006) and 11.44% to 11.64% (post-2006).
- ROE with New Investment Adder: Increased from 11.7% to 11.9% (pre-2006) and 12.44% to 12.64% (post-2006).
- Projected Blended ROE: Approximately 11.75% for 2008, rising to approximately 12.0% by 2012.
Material Changes Versus Prior Period
The FERC rehearing order modified the initial order regarding incentives for new transmission facilities under the ISO-New England Regional System Plan (RSP). Previously, the order allowed a 100 basis point adder for new facilities. The rehearing order restricts this adder to facilities that are "completed and on line" by December 31, 2008. Projects completed after this date must file project-specific requests meeting nexus requirements to receive incentives.
Guidance, Outlook, and Management Commentary
Management expects the rehearing order to have a modestly positive net effect on earnings, assuming major projects completed after 2008 receive additional incentives. The company maintains its 2008 consolidated earnings guidance:
- Consolidated EPS: $1.65 to $1.90 per share (or $1.45 to $1.70 per share including the impact of the Consolidated Edison litigation settlement).
- Transmission Segment EPS: $0.75 to $0.85 per share.
The filing notes that the rehearing order is not expected to impact these previously announced guidance figures.
Important Facts for Investor Verification
- Verify the status of major transmission projects to determine if they will be completed by the December 31, 2008 deadline for automatic incentive eligibility.
- Monitor future FERC filings for project-specific incentive requests for projects completed after 2008.
- Confirm the impact of the Consolidated Edison litigation settlement on the lower end of the earnings guidance range ($1.45 to $1.70).
- Note that segment EPS figures are non-GAAP measures calculated by dividing segment net income by average fully diluted common shares.