Eversource 2002 Annual Report Download - page 46

G. Regulatory Accounting and Assets
The accounting policies of NU’s regulated utilities conform to accounting
principles generally accepted in the United States of America applicable
to rate-regulated enterprises and historically reflect the effects of the
rate-making process in accordance with SFAS No. 71.
CL&P’s, PSNH’s and WMECO’s transmission and distribution businesses
continue to be cost-of-service rate regulated, and management believes
the application of SFAS No. 71 to that portion of those businesses
continues to be appropriate. Management also believes it is probable
that NU’s operating companies will recover their investments in long-
lived assets, including regulatory assets. In addition, all material regulatory
assets are earning a return, except for securitized regulatory assets.
The components of NU’s regulatory assets are as follows:
At December 31,
(Millions of Dollars) 2002 2001
Recoverable nuclear costs $ 85.4 $243.1
Securitized regulatory assets 1,891.8 2,004.1
Income taxes, net 331.9 301.3
Unrecovered contractual obligations 239.3 78.3
Recoverable energy costs, net 299.6 327.2
Other 62.0 333.5
Totals $2,910.0 $3,287.5
In March 2000, CL&P and WMECO completed the auction of certain
hydroelectric generation assets with a book value of $129 million. NGC
was the winning bidder in the auction and paid approximately $865.5
million for these assets. Restructuring legislation in both Connecticut
and Massachusetts requires gains from the sale of generation to be used
to reduce regulatory assets and other stranded costs. Since the entities
to the transaction are all wholly owned by NU, a gain was not recognized.
The purchase price of the hydroelectric generation assets is reflected
in competitive energy property, plant and equipment, and NGC is
depreciating the plant assets over their estimated useful life.
In March 2001, CL&P and WMECO sold their ownership interests in
the Millstone units. The gain on these sales in the amount of approximately
$521.6 million and $119.8 million, respectively, for CL&P and WMECO
were used to offset recoverable nuclear costs, resulting in a total
unamortized balance of $13.1 million and $158.1 million at December 31,
2002 and 2001, respectively. Additionally, PSNH recorded a regulatory
asset in conjunction with the sale of the Millstone units with an
unamortized balance of $36.8 million and $40.5 million at December 31,
2002 and 2001, which is also included in recoverable nuclear costs. Also
included in recoverable nuclear costs for 2002 and 2001 are $35.5 million
and $44.5 million, respectively, primarily related to Millstone 1 recoverable
nuclear costs associated with the recoverable portion of the undepreciated
plant and related assets.
In 2000, PSNH discontinued the application of SFAS No. 71 for its
generation business and created a regulatory asset for Seabrook over
market generation. In April 2001, PSNH issued rate reduction bonds in
the amount of $525 million. PSNH used the majority of this amount to
buydown its power contracts with NAEC. The Seabrook over market
generation was securitized at that time and is reflected in securitized
regulatory assets at December 31, 2002 and 2001. On May 22, 2001, the
Governor of New Hampshire signed a bill modifying the state’s electric
utility industry restructuring laws delaying the sale of PSNH’s fossil
and hydroelectric generation assets until at least February 1, 2004. Since
then there has been no regulatory action, and management currently
has no plans to divest these generation assets. As the NHPUC has
allowed and is expected to continue to allow rate recovery of a return
of and on these generation assets, as well as all operating expenses,
PSNH again meets the criteria for the application of SFAS No. 71 for
the generation portion of its business. Accordingly, costs related to the
generation assets, to the extent not currently recovered in rates, are
deferred as Part 3 stranded costs under the “Agreement to Settle PSNH
Restructuring” (Restructuring Settlement). Part 3 stranded costs are
nonsecuritized regulatory assets which must be recovered by a recovery
end date determined in accordance with the Restructuring Settlement
or be written off.
In March 2001, CL&P issued $1.4 billion in rate reduction certificates
and used $1.1 billion of those proceeds to buyout or buydown certain
contracts with independent power producers. In May 2001, WMECO
issued $155 million in rate reduction certificates and used $80 million
of those proceeds to buyout an independent power producer contract.
In January 2002, PSNH issued an additional $50 million in rate reduction
bonds and used the proceeds from this issuance to repay short-term
debt that was incurred to buyout a purchased-power contract in
December 2001. The majority of the payments to buyout or buydown
these contracts were recorded as securitized regulatory assets. CL&P
also securitized a portion of its SFAS No. 109 regulatory asset.
CL&P, WMECO and PSNH, under the terms of contracts with the
Yankee Companies, are responsible for their proportionate share of
the remaining costs of the units, including decommissioning. These
amounts are recorded as unrecovered contractual obligations. A portion
of these obligations for CL&P and WMECO was securitized in 2001
and is included in securitized regulatory assets. These remaining
amounts for PSNH are recovered as stranded costs. During 2002,
NU was notified by the Yankee Companies that the estimated cost of
decommissioning their units had increased over prior estimates due to
higher anticipated costs for spent fuel storage, security and liability and
property insurance. In December 2002, NU recorded an additional
$171.6 million in deferred contractual obligations and a corresponding
increase in the unrecovered contractual obligations regulatory asset as
a result of these increased costs.
CL&P, PSNH, WMECO, and NAEC, under the Energy Policy Act of
1992 (Energy Act), were assessed for their proportionate shares of the
costs of decontaminating and decommissioning uranium enrichment
plants owned by the United States Department of Energy (DOE) (D&D
Assessment) when they owned nuclear generating plants. The Energy
Act requires that regulators treat D&D Assessments as a reasonable
and necessary current cost of fuel, to be fully recovered in rates like any
other fuel cost. CL&P, PSNH and WMECO are currently recovering
these costs through rates. At December 31, 2002 and 2001, NU’s total
D&D Assessment deferrals were $21.9 million and $28.1 million,
respectively, and have been recorded as recoverable energy costs, net.
Through December 31, 1999, CL&P had an energy adjustment clause
under which fuel prices above or below base-rate levels were charged
to or credited to customers. CL&P’s energy costs deferred and not yet
collected under the energy adjustment clause amounted to $31.7 million
and $59 million at December 31, 2002 and 2001, respectively, which
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