Eversource 2003 Annual Report Download - page 76

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In November 2003, CYAPC prepared an updated estimate of the cost of
decommissioning its nuclear unit. NU’s aggregate share of the estimated
increased cost primarily related to the termination of Bechtel is approximately
$167.7 million. The respective shares of the estimated increased costs
recorded in 2003 are as follows: CL&P, $118.1 million; PSNH, $17.1
million; and WMECO, $32.5 million.
CYAPC is seeking recovery of additional decommissioning costs and
other damages from Bechtel and, if necessary, its surety. In pursuing this
recovery through pending litigation, CYAPC is also exploring options to
structure an appropriate rate application to be filed with the FERC, with
any resulting adjustments being charged to the owners of the nuclear
unit, including CL&P, PSNH and WMECO. The timing, amount and
outcome of these filings cannot be predicted at this time.
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. 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 significantly in 2003 and 2002, to be recovered in
wholesale rates. If 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.
At December 31, 2003 and 2002, NU’s remaining estimated obligations
for decommissioning and closure costs for the shut down units owned
by CYAPC, YAEC and MYAPC were $469.2 million and $354.5 million,
respectively.
H. Consolidated Edison, Inc. Merger Litigation
Certain gain and loss contingencies exist with regard to the litigation
related to the 1999 merger agreement between NU and Consolidated
Edison, Inc. (Con Edison).
On March 5, 2001, Con Edison advised NU that it was unwilling to
close its merger with NU on the terms set forth in the parties’ merger
agreement. On March 12, 2001, NU filed suit against Con Edison seeking
damages in excess of $1 billion.
On May 11, 2001, Con Edison filed an amended complaint seeking
damages for breach of contract, fraudulent inducement and negligent
misrepresentation. 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 now 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.
8. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each of the following financial instruments:
Cash and Cash Equivalents, Unrestricted Cash from Counterparties,
Restricted Cash — LMP, and Special Deposits: The carrying amounts
approximate fair value due to the short-term nature of these cash items.
SERP Investments: Investments held for the benefit of the SERP are
recorded at fair market value based upon quoted market prices. The
investments having a cost basis of $33.8 million and $17.9 million held
for benefit of the SERP were recorded at their fair market values at
December 31, 2003 and 2002, of $36.9 million and $17.8 million,
respectively. For information regarding the SERP liabilities, see Note 4E,
“Employee Benefits — Supplemental Executive Retirement and Other
Plans,” to the consolidated financial statements.
Preferred Stock, Long-Term Debt and Rate Reduction Bonds: The fair
value of NU’s fixed-rate securities is based upon the quoted market price
for those issues or similar issues. Adjustable rate securities are assumed
to have a fair value equal to their carrying value. The carrying amounts
of NU’s financial instruments and the estimated fair values are as follows:
At December 31, 2003
Carrying Fair
(Millions of Dollars) Amount Value
Preferred stock not subject
to mandatory redemption $ 116.2 $ 87.5
Long-term debt —
First mortgage bonds 743.0 833.3
Other long-term debt 1,810.7 1,896.5
Rate reduction bonds 1,730.0 1,860.7
At December 31, 2002
Carrying Fair
(Millions of Dollars) Amount Value
Preferred stock not subject
to mandatory redemption $ 116.2 $ 84.0
Long-term debt —
First mortgage bonds 771.0 810.0
Other long-term debt 1,577.2 1,597.8
Rate reduction bonds 1,899.3 2,080.6
Other long-term debt includes $256.4 million and $253.6 million of fees
and interest due for spent nuclear fuel disposal costs at December 31,
2003 and 2002, respectively.
Other Financial Instruments: The carrying value of financial instruments
included in current assets and current liabilities, including investments in
securitizable assets, approximates their fair value.