Eversource 2003 Annual Report Download - page 35

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On May 11, 2001, Con Edison filed an amended complaint seeking damages
for breach of contract, fraudulent inducement and negligent misrepresen-
tation. Con Edison claimed that it is entitled to recover a portion of the
merger synergy savings estimated to have a net present value in excess of
$700 million. NU disputes both Con Edison’s entitlement to any damages as
well as its method of computing its alleged damages.
The companies completed discovery in the litigation and both submitted
motions for summary judgment. The court denied Con Edison’s motion
in its entirety, leaving NU’s claim for breach of the merger agreement
and partially granted NU’s motion for summary judgment by eliminating
Con Edison’s claims against NU for fraud and negligent misrepresentation.
Various other motions in the case are pending. No trial date has been
set. At this stage of the litigation, management can predict neither the
outcome of this matter nor its ultimate effect on NU.
Nuclear Generation Asset Divestitures
Millstone: On March 31, 2001, CL&P and WMECO consummated the
sale of Millstone 1 and 2 and CL&P, PSNH and WMECO sold their
ownership interests in Millstone 3.
Seabrook: On November 1, 2002, CL&P, NAEC, and certain other joint
owners consummated the sale of their ownership interests in Seabrook.
Vermont Yankee: On July 31, 2002, Vermont Yankee Nuclear Power
Corporation (VYNPC) consummated the sale of its nuclear generating
unit. In November 2003, CL&P, PSNH and WMECO collectively sold back
to VYNPC their shares of stock for approximately $1.5 million. CL&P,
PSNH and WMECO continue to purchase their respective shares of
approximately 16 percent of the plant’s output under new contracts.
Nuclear Decommissioning and Plant Closure Costs: Although the
purchasers of NU’s ownership shares of the Millstone, Seabrook and
Vermont Yankee plants assumed the obligation of decommissioning
those plants, NU still has significant decommissioning and plant closure
cost obligations to the companies that own the Yankee Atomic (YA),
Connecticut Yankee (CY) and Maine Yankee (MY) plants (collectively
Yankee Companies). Each plant has been shut down and is undergoing
decommissioning. The Yankee Companies collect decommissioning and
closure costs through wholesale FERC-approved rates charged under
power purchase agreements to NU electric utility companies CL&P, PSNH,
and WMECO. These companies in turn pass these costs on to their
customers through state regulatory commission-approved retail rates.
A portion of the decommissioning and closure costs has already been
collected, but a substantial portion related to the decommissioning of
CY has not yet been filed at and approved for collection by the FERC. The
cost estimate for CY that has not yet been approved for recovery by the
FERC at December 31, 2003 is $258.3 million.
NU cannot at this time predict the timing or outcome of the FERC proceeding
required for the collection of these remaining decommissioning and closure
costs or the Bechtel Power Corporation litigation referred to in Note 7G,
“Commitments and Contingencies — Nuclear Decommissioning and
Plant Closure Costs,” to the consolidated financial statements. Although
management believes that these costs will ultimately be recovered from
the customers of CL&P, PSNH, and WMECO, there is a risk that the FERC
may not allow these costs, the estimates of which have increased signifi-
cantly in 2003 and 2002, to be recovered in wholesale rates. If the FERC
does not allow these costs to be recovered in wholesale rates, NU would
expect the state regulatory commissions to disallow these costs in retail
rates as well.
Off-Balance Sheet Arrangements
Utility Group: The CL&P Receivables Corporation (CRC) was incorporated
on September 5, 1997, and is a wholly owned subsidiary of CL&P. CRC
has an arrangement with a highly rated financial institution under which
CRC can sell up to $100 million of accounts receivable. At December 31,
2003 and 2002, CRC had sold accounts receivable of $80 million and
$40 million, respectively, to that financial institution with limited
recourse.
CRC was established for the sole purpose of selling CL&P’s accounts
receivable and unbilled revenues and is included in the consolidation of
NU’s financial statements. On July 9, 2003, CRC renewed its Receivables
Purchase and Sale Agreement with CL&P and the financial institution.
The agreement expires on July 7, 2004. Management plans to renew this
agreement prior to its expiration.
The transfer of receivables to the financial institution under this arrange-
ment qualifies for sale treatment under SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities — A Replacement of SFAS No. 125.” Accordingly, the $80
million and $40 million outstanding under this facility are not reflected
as debt or included in the consolidated financial statements at December
31, 2003 and 2002, respectively.
This off-balance sheet arrangement is not significant to NU’s liquidity or
other benefits. There are no known events, demands, commitments,
trends, or uncertainties that will, or are reasonably likely to, result in the
termination, or material reduction in the amount available to the company
under this off-balance sheet arrangement.
NU Enterprises: During 2001, SESI created HEC/CJTS Energy Center, LLC
(HEC/CJTS) which is a special purpose entity (SPE). Management decided
to create HEC/CJTS for the sole purpose of providing a bankruptcy-remote
entity for the financing of a construction project. The construction project
was the construction of an energy center to serve the Connecticut
Juvenile Training School (CJTS). The owner of CJTS, the State of
Connecticut, entered into a 30-year lease with HEC/CJTS for the energy
center. Simultaneously, HEC/CJTS transferred its interest in the lease with
the State of Connecticut to investors who are unaffiliated with NU in
exchange for the issuance of $19.2 million of Certificates of
Participation. The transfer of HEC/CJTS’s interest in the lease was
accounted for as a sale under SFAS No. 140. The debt of $19.2 million
created in relation to the transfer of interest and issuance of the
Certificates of Participation was derecognized and is not reflected as
debt or included in the consolidated financial statements. No gain or loss
was recorded. HEC/CJTS does not provide any guarantees or on-going
services, and there are no contingencies related to this arrangement.
SESI has a separate contract with the State of Connecticut to operate
and maintain the energy center. The transaction was structured in this
manner to obtain tax-exempt rate financing and therefore to reduce the
State of Connecticut’s lease payments.
This off-balance sheet arrangement is not significant to NU’s liquidity,
capital resources or other benefits. There are no known events, demands,
commitments, trends, or uncertainties that will, or are reasonably likely
to, result in the termination of this off-balance sheet arrangement.