Eversource 2003 Annual Report Download - page 62

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SEC authorization was also given on June 30, 2003, permitting NAEC to
incur short-term borrowings from the Pool up to a maximum of $10 mil-
lion through June 30, 2004. NAEC currently has a short-term debt limit
set by the NHPUC equal to 10 percent of net fixed plant and has no
plans at this time to incur any future short-term borrowings.
Utility Group Credit Agreement: On November 10, 2003, CL&P, PSNH,
WMECO, and Yankee Gas entered into a 364-day unsecured revolving
credit facility for $300 million. This facility replaces a similar credit facility
that expired on November 11, 2003. CL&P may draw up to $150 million
with PSNH, WMECO and Yankee Gas able to draw up to $100 million,
subject to the $300 million maximum borrowing limit. Unless extended,
the credit facility will expire on November 8, 2004. At December 31,
2003 and 2002, there were $40 million and $7 million, respectively, in
borrowings under these credit facilities.
NU Parent Credit Agreement: On November 10, 2003, NU entered into a
364-day unsecured revolving credit and letter of credit (LOC) facility for
$350 million. This facility replaces a similar facility that expired on
November 11, 2003. This facility provides a total commitment of $350
million, subject to two overlapping sub-limits. First, subject to the notional
amount of any outstanding LOCs, amounts up to $350 million are available
for advances. Second, subject to the advances outstanding, LOCs may be
issued in notional amounts up to $250 million for periods up to 364 days.
The agreement provides for LOCs to be issued in the name of NU or any
of its subsidiaries. Unless extended, the credit facility will expire on
November 8, 2004. At December 31, 2003 and 2002, there were $65
million and $49 million, respectively, in borrowings under these credit
facilities. In addition, there were $106.9 million and $6.7 million in LOCs
outstanding at December 31, 2003 and 2002, respectively.
Under the Utility Group and NU parent credit agreements, NU and its
subsidiaries may borrow at fixed or variable rates plus an applicable margin
based upon certain debt ratings, as rated by the lower of Standard and
Poor’s or Moody’s Investors Service. The weighted average interest rates
on NU’s notes payable to banks outstanding on December 31, 2003 and
2002 were 2.07 percent and 4.25 percent, respectively.
Under the Utility Group and NU parent credit agreements, NU and its
subsidiaries must comply with certain financial and non-financial
covenants as are customarily included in such agreements, including but
not limited to, consolidated debt ratios and interest coverage ratios. The
most restrictive financial covenant is the interest coverage ratio. The
parties to the credit agreements currently are and expect to remain in
compliance with these covenants.
Other Credit Facility: On December 29, 2003, E.S. Boulos Company
(Boulos), a subsidiary of NGS, entered into a line of credit for $6 million.
This facility replaces a similar credit facility that expired on December 31,
2003, and unless extended, this credit facility will expire on June 30, 2004.
This credit facility limits Boulos’ ability to pay dividends if borrowings are
outstanding and limits access to the Pool for additional borrowings. At
December 31, 2003 and 2002, there were no borrowings under this
credit facility.
3. Derivative Instruments, Market Risk and Risk
Management
A. Derivative Instruments
Effective January 1, 2001, NU adopted SFAS No. 133, as amended.
Derivatives that are utilized for trading purposes are recorded at fair
value with changes in fair value included in earnings. Other contracts
that are derivatives but do not meet the definition of a cash flow hedge
and cannot be designated as being used for normal purchases or normal
sales are also recorded at fair value with changes in fair value included in
earnings. For those contracts that meet the definition of a derivative and
meet the cash flow hedge requirements, the changes in the fair value of
the effective portion of those contracts are generally recognized in accu-
mulated other comprehensive income until the underlying transactions
occur. For contracts that meet the definition of a derivative but do not
meet the hedging requirements, and for the ineffective portion of con-
tracts that meet the cash flow hedge requirements, the changes in fair
value of those contracts are recognized currently in earnings. Derivative
contracts designated as fair value hedges and the item they are hedging
are both recorded at fair value on the consolidated balance sheets.
Derivative contracts that are entered into as a normal purchase or sale
and will result in physical delivery, and are documented as such, are
recorded under accrual accounting. For information regarding account-
ing changes related to derivative instruments, see Note 1C, “Summary of
Significant Accounting Policies — New Accounting Standards,” to the
consolidated financial statements.
During 2003, a negative $5.3 million, net of tax, was reclassified from
other comprehensive income in connection with the consummation of
the underlying hedged transactions and recognized in earnings. An
additional $0.3 million, net of tax, was recognized in earnings for those
derivatives that were determined to be ineffective and for the ineffective
portion of cash flow hedges. Also during 2003, new cash flow hedge
transactions were entered into that hedge cash flows through 2006. As
a result of these new transactions and market value changes since
January 1, 2003, accumulated other comprehensive income increased by
$9.3 million, net of tax. Accumulated other comprehensive income at
December 31, 2003 was a positive $24.8 million, net of tax (increase to
equity), relating to hedged transactions, and it is estimated that $27.3
million of this net of tax balance will be reclassified as an increase to
earnings within the next twelve months. Cash flows from hedge contracts
are reported in the same category as cash flows from the underlying
hedged transaction.
During 2002, a positive $17 million, net of tax, was reclassified from
other comprehensive income in connection with the consummation of
the underlying hedged transactions and recognized in earnings. An
additional $0.9 million, net of tax, was recognized in earnings for those
derivatives that were determined to be ineffective and for the ineffective
portion of cash flow hedges. During 2002, new cash flow hedge
transactions were entered into that hedge cash flows through 2005. As
a result of these new transactions and market value changes during
2002, accumulated other comprehensive income increased by $52.4 million,
net of tax. Accumulated other comprehensive income at December 31,
2002 was a positive $15.5 million, net of tax (increase to equity), relating
to hedged transactions.