Business Context and Reporting Period
This Form 8-K is a current report filed on July 14, 2010, by Northeast Utilities (NU) and its wholly-owned subsidiary, The Connecticut Light and Power Company (CL&P). The filing addresses regulatory developments in Connecticut regarding electric distribution rates and transmission project investments.
Key Financial Metrics and Impacts
- Rate Case Revenue Approval: The Connecticut Department of Public Utility Control (DPUC) Final Decision approved distribution revenue increases of $63.4 million for 2010 and $38.5 million for 2011.
- Regulatory Asset Disallowance: The DPUC disallowed the establishment of an $8.2 million regulatory asset related to lost tax benefits from the Patient Protection and Affordable Care Act of 2010.
- Earnings Charge: NU recorded an after-tax charge of $9.8 million ($0.06 per share) in the second quarter of 2010. This charge represents the collective portions of deferred amounts for CL&P and Yankee Gas Service Company.
- Deferred Amounts: NU had previously deferred $14.6 million of such impacts on an after-tax consolidated basis in Q1 2010. Approximately $4.8 million related to other subsidiaries remains deferred but is not expected to be recovered.
Material Changes Versus Prior Period
The Final Decision issued on June 30, 2010, increased approved revenue figures compared to the Draft Decision issued on June 14, 2010. Specifically, 2010 revenue increased from $61.1 million to $63.4 million, and 2011 revenue increased from $37.7 million to $38.5 million. However, the Final Decision introduced a material negative change by disallowing the $8.2 million regulatory asset, resulting in the immediate $9.8 million after-tax charge.
Outlook, Risks, and Contingencies
- Request for Reconsideration: CL&P filed a request for reconsideration of the regulatory asset disallowance. If successful, CL&P and Yankee Gas could re-establish the amounts as regulatory assets, resulting in a potential $9.8 million benefit to earnings.
- Transmission Project Investment: On July 15, 2010, CL&P and The United Illuminating Company (UI) filed a joint application seeking DPUC approval for UI's investment in portions of the New England East West Solution (NEEWS) projects.
- Recovery Risk: NU does not expect to recover approximately $4.8 million of deferred amounts related to its other two regulated subsidiaries, as they are not regulated by the DPUC.
Investor Verification Checklist
- Verify the status of CL&P's request for reconsideration regarding the $8.2 million regulatory asset disallowance.
- Confirm the outcome of the joint application filed by CL&P and UI for the NEEWS project investment.
- Review the impact of the $9.8 million after-tax charge on the second quarter 2010 earnings per share.
- Monitor the probability of recovery for the remaining $4.8 million deferred amount associated with non-DPUC regulated subsidiaries.