Eversource 2004 Annual Report Download - page 25

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To maintain a capital structure that includes approximately 55 percent
of total debt at each of the Utility Group companies, NU continues to
infuse common equity. NU parent made a total of $94.5 million of
common equity contributions to the Utility Group companies in 2004,
including $88 million to CL&P. At December 31, 2004, NU parent had
loaned on a temporary basis approximately $110 million to other NU
companies, most of which was loaned to the Utility Group companies
through the NU money pool. Over the course of 2005, these subsidiaries
are expected to repay most of that amount to NU parent, which will use
those proceeds and subsidiary dividends to fund NU’s common dividend,
meet NU parent interest and sinking fund obligations, and infuse additional
common equity into the Utility Group companies, particularly CL&P.
NU expects to continue to infuse additional equity into the regulated
companies for several years beyond 2005. To raise that additional equity,
NU expects to sell common shares to the public as early as 2006.
The significant capital requirements of the Utility Group, particularly at
CL&P, were one reason that the credit rating outlooks on various NU
and subsidiary securities were lowered in 2004. Standard and Poor’s
(S&P) reduced the outlook on all NU securities it rates to “negative”
from “stable.” In 2004, S&P lowered its ratings on NGC’s debt to BB+,
below investment grade, and Moody’s Investors Service (Moody’s) lowered
its ratings on NGC debt to Baa3, its lowest investment grade ratings.
Fitch Ratings changed the outlook on NU and CL&P debt to “negative”
in January 2005. In February 2005, Moody’s reduced by one level the
ratings of NU, CL&P, Yankee Gas, and NGC. It lowered by two levels
the ratings on WMECO and affirmed with no change the ratings of
PSNH. The ratings changes will result in modest increases in future
borrowing costs for NU, CL&P and WMECO on their respective revolving
credit agreements. The changes are not expected to have a material
impact on borrowing costs when the Utility Group seeks long-term
financing to support its capital investment plans. NGC did not issue
new debt in 2004 and is not expected to issue new debt in the near
future. All ratings of NU and subsidiary securities remain investment
grade with the exception of Moody’s and S&P ratings on NGC’s bonds.
As a result, those downgrades had no impact on the company’s
financial results.
On November 8, 2004, NU entered into a 5-year unsecured revolving
credit and letter of credit (LOC) facility for $500 million on a short-term
basis. This facility is intended to provide liquidity, LOCs and necessary
capital for NU Enterprises. At December 31, 2004, there were $100 million
of borrowings and $48.9 million of LOCs outstanding under this credit
facility. For more information regarding the NU parent revolving credit
facility, see Note 2, “Short-Term Debt,” to the consolidated financial
statements.
Utility Group: On November 8, 2004, the Utility Group entered into a
5-year unsecured revolving credit facility for $400 million. Under this
credit facility, CL&P is able to borrow up to $200 million, and PSNH,
WMECO, and Yankee Gas will be able to borrow up to $100 million
each on a short-term basis. There were $80 million in borrowings
outstanding under this credit facility at December 31, 2004. For more
information regarding the Utility Group revolving credit facility, see
Note 2, “Short-Term Debt” to the consolidated financial statements.
In addition to its revolving credit line, CL&P has an arrangement with
a financial institution under which CL&P can sell up to $100 million
of accounts receivable and unbilled revenues. At December 31, 2004,
CL&P had sold accounts receivable totaling $90 million to that financial
institution. For more information regarding the sale of receivables, see
Note 1O, “Summary of Significant Accounting Policies — Sale of
Receivables” to the consolidated financial statements.
On September 17, 2004, CL&P issued $150 million of 10-year first
mortgage bonds at a fixed interest rate of 4.8 percent and also issued
$130 million of 30-year first mortgage bonds at a fixed interest rate of
5.75 percent. CL&P used the proceeds from these issuances to repay
short-term and redeem long-term debt.
During 2004, as part of the approved SMD settlement agreement,
CL&P paid $83 million to its suppliers, of which $40.5 million was paid
to affiliate Select Energy, and refunded $75 million to its customers.
Of the combined payment and refund amount totaling $158 million,
$124 million was funded from an escrow fund that was established
during 2003 and 2004 as these SMD costs were being collected from
customers. Additionally, the DPUC ordered a refund of $88.5 million in
CTA/System Benefits Charge (SBC) overcollections over a seven-month
period beginning with October 2004 consumption. The combination of
the SMD and CTA/SBC refunds, when combined with CL&P’s proposed
capital expenditures, will negatively impact CL&P’s liquidity. However,
CL&P expects no difficulty in meeting these additional cash requirements.
Under FERC policy, transmission owners may capitalize debt and equity
costs during the construction period through an allowance for funds
used during construction (AFUDC). Debt costs capitalized offset interest
expense with no impact on net income, while equity costs capitalized
increase net income. CL&P expects to fund its construction expenditures
with approximately 45 percent equity and 55 percent debt.
On July 22, 2004, PSNH issued $50 million of 10-year first mortgage
bonds at a fixed interest rate of 5.25 percent. Proceeds were used to
repay short-term debt and fund PSNH’s capital expenditure program.
In October 2004, PSNH received the approvals necessary to begin the
construction related to the conversion of one of the coal-fired units at
Schiller Station to burn wood. The NHPUC approved the project, but
the NHPUC’s approval has been appealed to the New Hampshire
Supreme Court. This project is expected to cost approximately $75 million.
On September 23, 2004, WMECO issued $50 million of 30-year senior
unsecured notes at a fixed interest rate of 5.9 percent. Proceeds were
used to finance a trust fund that will be used to meet WMECO’s prior
spent nuclear fuel liability of $49.3 million at December 31, 2004 which
is recorded in long-term debt on the consolidated balance sheets. At
December 31, 2004, the prior spent nuclear fuel trust totaled $49.3 million.
On January 30, 2004, Yankee Gas issued $75 million of 10-year first
mortgage bonds carrying an interest rate of 4.8 percent. Yankee Gas
issued an additional $50 million of 15-year first mortgage bonds with
an interest rate of 5.26 percent on November 15, 2004. The proceeds
from the issuance of these bonds were primarily used to repay short-
term debt incurred to redeem long-term debt.