Eversource 2004 Annual Report Download - page 24

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NU Enterprises’ marketing subsidiary, Select Energy, has built a very
strong retail energy marketing franchise in the Northeast and Middle
Atlantic states, and the company expects to build on that market
presence. Additionally, the number of commercial and industrial
customers buying their electricity and natural gas from competitive
suppliers is continuing to rise. Select Energy’s retail marketing revenues
in 2004 were approximately $850 million on sales of approximately
10 million megawatt-hours of electricity and 40 billion cubic feet of
natural gas. Select Energy’s retail marketing business serves approximately
30,000 commercial and industrial locations in the New England, New York
and PJM power pools. Select Energy’s retail marketing business projects
revenues to grow to approximately $1 billion in 2005 because of a
continued expansion of the retail market and its high customer
retention rate of approximately 85 percent.
NU will retain its 1,443 MW of competitive generating assets because
it expects that their value could increase significantly in the coming
years. The competitive generating assets, which include pumped storage,
hydroelectric, and coal-fired units, are contained within NGC and HWP
subsidiaries. NU Enterprises also will retain its NGS subsidiary, which
operates the NGC and HWP plants.
NU Enterprises accounted for approximately $2.1 billion of NU’s revenue
in 2004, excluding sales to affiliated regulated companies. The wholesale
marketing business accounted for approximately $1 billion of that revenue,
and NU Enterprises’ energy services businesses accounted for
approximately $275 million. The energy services businesses include
E.S. Boulos Company and Woods Electrical Co., Inc., both electrical
contractors; Woods Network, a telecommunications contracting firm;
Select Energy Contracting, Inc., an electrical, mechanical, and plumbing
contractor; and SESI, a performance contracting subsidiary that
specializes in upgrading the energy efficiency of large governmental
and institutional facilities.
NU expects to record a charge in the first quarter of 2005 associated
with the wholesale marketing and energy services business. The level
of that charge will depend on a number of factors, including how the
disposition of those businesses is accomplished.
The company expects that implementation of its decisions will have an
impact on employment levels in those businesses but that the actual
impact is not known at this time because the disposition process has
just begun. It is the company’s goal to minimize layoffs by using, to the
extent possible, open positions within NU or by a possible sale of both
the wholesale marketing franchise and the energy services businesses
in which the buyers may offer positions to existing employees.
Liquidity
Consolidated: NU continues to maintain an adequate level of liquidity.
At December 31, 2004, NU had $47 million of cash and cash
equivalents on hand compared with $43.4 million at December 31,
2003. As discussed in Note 16, “Restatement of Previously Issued
Financial Statements,” the December 31, 2003 amount of cash and
cash equivalents has been restated.
Cash flows from operations decreased by $76.3 million from
$593.4 million in 2003 to $517.1 million in 2004. Changes in current
assets and liabilities were consistent from year to year and were
decreases of approximately $91 million in 2003 and approximately
$86 million in 2004. Increases in cash flows related to deferred taxes
were offset by decreases related to regulatory refunds.
The decrease in year over year cash flows from regulatory (refunds)/
overrecoveries is primarily due to lower Competitive Transition Assessment
(CTA) and Generation Service Charge (GSC) collections in 2004 as CL&P
refunds amounts to its ratepayers for past over collections or uses those
amounts to recover current costs. These refunds are also the primary
reason for the positive change in year over year deferred income taxes,
which has increased operating cash flows as refunded amounts were
currently deducted for tax purposes. Lower taxes paid also benefited
cash flows from operations in 2004 due to bonus tax depreciation on
newly completed plant assets.
NU paid common dividends of $80.2 million in 2004, compared with
$73.1 million in 2003 and $67.8 million in 2002. The increase reflects
increases in quarterly common dividends of $0.0125 per share
declared in the third quarters of 2002, 2003, and 2004. Management
expects to continue to recommend that the NU Board of Trustees
increase the common dividend on an annual basis, subject to the
company’s future earnings and cash requirements. On January 31, 2005,
the Board of Trustees approved a quarterly dividend of $0.1625 per share,
payable March 31, 2005 to shareholders of record as of March 1, 2005.
Capital expenditures described herein are cash capital expenditures and
exclude cost of removal, AFUDC, and the capitalized portion of pension
income. NU’s capital expenditures totaled $643.8 million in 2004,
compared with $563.6 million in 2003 and $510.5 million in 2002. NU’s
2004 capital expenditures included $370.8 million by CL&P, $143.6 million
by PSNH, $56.6 million by Yankee Gas, $38.6 million by WMECO, and
$34.2 million by other NU subsidiaries, including $17.6 million by NU
Enterprises. The increase in capital expenditures was primarily the
result of higher transmission capital expenditures, which totaled
$163.9 million in 2004, compared with $96.3 million in 2003 and
$57.9 million in 2002. The company projects capital expenditures of
approximately $3.7 billion over the five-year period from 2005 through
2009, including approximately $740 million in 2005. Capital spending
projections are highly dependent on regulatory approval of major
projects, particularly transmission investments.
Management projects that NU will need in excess of $4 billion from
2005 through 2009 to meet its capital expenditure requirements, common
and preferred dividends, and other cash requirements. NU expects to
fund approximately half of this need through operating cash flows with
the remainder expected to be funded through external financings and
the sale of common shares. Management believes that the majority of
the external financing will be debt but that NU will need to raise several
hundred million dollars through the sale of its common shares. The
timing and amount of those equity issuances will depend greatly on
the timing of major transmission investments and the level of dividends
and equity capital that will be paid to NU by its subsidiaries. Over the
next five years, management expects the Utility Group to continue to
issue debt annually while debt levels at NU parent and NGC continue
to decline.