Eversource 2004 Annual Report Download - page 26

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NU Enterprises: During 2004 NGC repaid approximately $32 million of
long-term debt and is scheduled to meet $37.5 million of sinking fund
maturities in 2005. SESI borrowed a total of $7.8 million during 2004 to
finance the implementation of energy saving improvements at customer
facilities. In 2004, SESI sold $30 million of receivables related to the
energy savings contract projects. The transfer of receivables to the
unaffiliated third party qualified as a sale under Statement of Financial
Accounting Standards (SFAS) No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities —
A Replacement of SFAS No. 125.” Accordingly, the $30 million sold at
December 31, 2004 is not included as debt in the consolidated financial
statements. At December 31, 2004 and 2003, SESI had $93.2 million
and $118 million of long-term debt outstanding, respectively. Funds to
repay these borrowings are provided by SESI’s energy savings contract
project revenues. Performance of these energy savings contract
projects is guaranteed by NU.
For information regarding SESI’s off-balance sheet arrangements,
see “Off-Balance Sheet Arrangements,” included in this Management’s
Discussion and Analysis.
Nuclear Decommissioning and Plant Closure Costs
The Connecticut Yankee Atomic Power Company (CYAPC) is currently in
litigation with Bechtel Power Corporation (Bechtel) over the termination
of its decommissioning contract. On June 13, 2003, CYAPC gave notice
of the termination of its contract with Bechtel for the decommissioning
of its nuclear power plant. CYAPC terminated the contract due to
Bechtel’s incomplete and untimely performance and refusal to perform
the remaining decommissioning work. Bechtel has departed the site,
and the decommissioning responsibility has been transitioned to
CYAPC, which has recommenced the decommissioning process.
CYAPC’s estimated decommissioning and plant closure costs for the
period 2000 through 2023 have increased by approximately $395 million
over the April 2000 estimate of $436 million approved by the FERC in a
2000 rate case settlement. The revised estimate reflects the increases
in the projected costs of spent fuel storage, increased security and liability
and property insurance costs, and the fact that CYAPC is now self-
performing all work to complete the decommissioning of the plant due
to the termination of the decommissioning contract with Bechtel in
July 2003. NU’s share of CYAPC’s increase in decommissioning and
plant closure costs is approximately $194 million. On July 1, 2004,
CYAPC filed with the FERC for recovery of these increased costs. In
the filing, CYAPC sought to increase its annual decommissioning
collections from $16.7 million to $93 million for a six-year period
beginning on January 1, 2005. On August 30, 2004, the FERC issued
an order accepting the rates, with collection beginning on February 1,
2005 subject to refund, and scheduled hearings for May 2005. In total,
NU’s estimated remaining decommissioning and plant closure
obligation for CYAPC is $308.7 million at December 31, 2004.
On June 10, 2004, the DPUC and Office of Consumer Counsel (OCC)
filed a petition seeking a declaratory order that CYAPC be allowed to
recover all decommissioning costs from its wholesale purchasers,
including CL&P, PSNH and WMECO, but that such purchasers may
not be allowed to recover in their retail rates any costs that the FERC
might determine to have been imprudently incurred. On August 30, 2004,
the FERC denied this petition. On September 29, 2004, the DPUC and
OCC asked the FERC to reconsider the petition. On October 29, 2004,
the FERC issued an order granting further consideration regarding the
DPUC’s and OCC’s petition for reconsideration. No hearing date has
been established for this reconsideration.
On February 22, 2005, the DPUC filed testimony with the FERC. In
its filed testimony, the DPUC argues that approximately $215 million
to $225 million of CYAPC’s requested increase is due to CYAPC’s
imprudence in managing the decommissioning project while Bechtel
was the contractor. Therefore, the DPUC recommends a total
disallowance of between $225 million to $234 million. Hearings are
scheduled to begin on June 1, 2005. NU’s share of the DPUC’s
recommended disallowance is between $110 million to $115 million.
On June 23, 2003, Bechtel filed a complaint against CYAPC asserting
a number of claims and seeking a variety of remedies, including monetary
and punitive damages and rescission of the contract. Bechtel has since
amended its complaint to add claims for wrongful termination. On
August 22, 2003, CYAPC filed its answer and counterclaims, including
counts for breach of contract, negligent misrepresentation and breach
of duty of good faith and fair dealing. Discovery is currently underway,
and a trial has been scheduled for May 2006.
In the prejudgment remedy proceeding before the Connecticut
Supreme Court (the Court), Bechtel sought garnishment of the CYAPC
decommissioning trust and related payments. In October 2004, Bechtel
and CYAPC entered into an agreement under which Bechtel waived its
right to seek garnishment of the decommissioning trust and related
payments in return for the potential attachment of CYAPC’s real property
in Connecticut and the escrowing of $41.7 million the sponsors are
scheduled to pay to CYAPC through June 30, 2007 with respect to CYAPC’s
common equity. This stipulation is subject to approval of the Court and
would not be implemented until the Court found that such assets were
subject to attachment. CYAPC has contested the attachability of such
assets. The DPUC is an intervener in this proceeding.
Management cannot at this time predict the timing or outcome of the
FERC proceeding required for the collection of the increased CYAPC
decommissioning costs. Management believes that the costs have been
prudently incurred and will ultimately be recovered from the customers
of CL&P, PSNH and WMECO. However, there is a risk that some
portion of these increased costs may not be recovered, or will have
to be refunded if recovered, as a result of the FERC proceedings.
Management also cannot predict the timing and the outcome of the
litigation with Bechtel.
The Yankee Companies filed litigation in 1998 charging that the federal
government breached contracts it entered into with each company
in 1983 under the Nuclear Waste Policy Act of 1982 (the Act). Under
the Act, the United States Department of Energy (DOE) was to begin
removing spent nuclear fuel from the nuclear plants of Yankee Atomic
Electric Company (YAEC), Maine Yankee Atomic Power Company (MYAPC)
and CYAPC no later than January 31, 1998 in return for payments by each
company into the nuclear waste fund. No fuel has been collected by
the DOE, and spent nuclear fuel is stored on the sites of the Yankee
Companies’ plants. YAEC, MYAPC and CYAPC collected the funds for
payments into the nuclear waste fund from wholesale utility customers
under FERC-approved contract rates.The wholesale utility customers in
turn collect these payments from their retail electric customers. The