Eversource 2002 Annual Report Download - page 43

1. Summary of Significant Accounting Policies
A. About Northeast Utilities
Northeast Utilities (NU or the company) is the parent company of the
Northeast Utilities system. NU’s regulated utilities furnish franchised
retail electric service in Connecticut, New Hampshire and western
Massachusetts through three wholly owned subsidiaries: The
Connecticut Light and Power Company (CL&P), Public Service
Company of New Hampshire (PSNH) and Western Massachusetts
Electric Company (WMECO). Another wholly owned subsidiary,
North Atlantic Energy Corporation (NAEC), previously sold all of its
entitlement to the capacity and output of the Seabrook Station nuclear
unit (Seabrook) to PSNH under the terms of two life-of-unit, full cost
recovery contracts (Seabrook Power Contracts). Seabrook was sold on
November 1, 2002. Other subsidiaries include Holyoke Water Power
Company (HWP), a company engaged in the production of electric
power, and Yankee Energy System, Inc. (Yankee), the parent company
of Yankee Gas Services Company (Yankee Gas), Connecticut’s largest
natural gas distribution system.
NU is registered with the Securities and Exchange Commission (SEC)
as a holding company under the Public Utility Holding Company Act
of 1935 (1935 Act), and is subject to the provisions of the 1935 Act.
Arrangements among NU’s companies, outside agencies and other
utilities covering interconnections, interchange of electric power and
sales of utility property are subject to regulation by the Federal Energy
Regulatory Commission (FERC) and/or the SEC. The operating subsidiaries
are subject to further regulation for rates, accounting and other matters
by the FERC and/or applicable state regulatory commissions.
NU Enterprises, Inc. (NUEI) is a wholly owned subsidiary of NU and
acts as the holding company for certain of NU’s competitive energy
subsidiaries. These subsidiaries include Select Energy, Inc., and subsidiary
(Select Energy), a corporation engaged in the trading, marketing,
transportation, storage, and sale of energy commodities, at wholesale
and retail, in designated geographical areas; Northeast Generation
Company (NGC), a corporation that acquires and manages generation
facilities; Select Energy Services, Inc. and subsidiaries (SESI), a provider
of energy management, demand-side management and related consulting
services for commercial, industrial and institutional electric companies
and electric utility companies, and; Northeast Generation Services
Company and subsidiaries (NGS), a corporation that maintains and
services fossil or hydroelectric facilities and provides third-party electrical,
mechanical, and engineering contracting services.
In July 2002, the competitive energy subsidiaries acquired certain assets
and assumed certain liabilities of Woods Electrical Co. Inc., (Woods
Electrical), an electrical services company, and Woods Network
Services, Inc. (Woods Network), a network products and services
company for an aggregate adjusted purchase price of $16.3 million.
Woods Electrical is wholly owned by NGS, and Woods Network is
wholly owned by NUEI.
Another subsidiary is Mode 1 Communications, Inc. (Mode 1), an
investor in a fiber-optic communications network.
Several wholly owned subsidiaries of NU provide support services for
NU’s companies and, in some cases, for other New England utilities.
Northeast Utilities Service Company provides centralized accounting,
administrative, engineering, financial, information resources, legal,
operational, planning, purchasing, and other services to NU’s companies.
Until the sale of Seabrook on November 1, 2002, North Atlantic Energy
Service Corporation (NAESCO) had operational responsibility for
Seabrook. Three other subsidiaries construct, acquire or lease some
of the property and facilities used by NU’s companies.
B. Presentation
The consolidated financial statements of NU include the accounts of
all subsidiaries. Intercompany transactions have been eliminated
in consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain reclassifications of prior years’data have been made to conform
with the current year’s presentation.
C. New Accounting Standards
Energy Trading and Risk Management Activities: In June 2002, the
Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board (FASB) reached a consensus on EITF Issue No. 02-3,
“Accounting for Contracts Involved in Energy Trading and Risk
Management Activities,” requiring companies engaged in energy
trading activities to classify revenues and expenses associated with
energy trading contracts on a net basis in revenues, rather than recording
revenues for sales and expenses for purchases. While this consensus
was subsequently rescinded by the EITF on October 25, 2002, NU
chose to adopt net reporting of energy trading revenues and expenses
for contracts that physically settle effective July 1, 2002. Operating
revenues and fuel, purchased and net interchange power for the year
ended December 31, 2002 reflect net reporting, and the adoption of net
reporting was applied retroactively to 2001 operating revenues and fuel,
purchased and net interchange power but had no effect on net income.
Notes To Consolidated Financial Statements
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