Eversource 2004 Annual Report Download - page 36

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in exchange for the issuance of $19.2 million of Certificates of
Participation. The transfer of HEC/CJTS’s interest in the lease was
accounted for as a sale under SFAS No. 140. The debt of $19.2 million
created in relation to the transfer of interest and issuance of the
Certificates of Participation was derecognized and is not reflected
as debt or included in the consolidated financial statements. No gain
or loss was recorded. HEC/CJTS does not provide any guarantees
or on-going services, and there are no contingencies related to
this arrangement.
SESI has a separate contract with the State of Connecticut to operate
and maintain the energy center. The transaction was structured in this
manner to obtain tax-exempt rate financing and therefore to reduce
the State of Connecticut’s lease payments.
This off-balance sheet arrangement is not significant to NU’s liquidity,
capital resources or other benefits. There are no known events,
demands, commitments, trends, or uncertainties that will, or are
reasonably likely to, result in the termination of this off-balance
sheet arrangement.
SESI entered into a master purchase agreement with an unaffiliated
third party on April 30, 2002 under which SESI may sell certain
receivables that are due or become due under delivery orders
issued pursuant to federal energy savings performance contracts.
At December 31, 2004, SESI had sold $30 million of receivables related
to the installation of the energy efficiency projects under this arrangement.
The transfer of receivables to the unaffiliated third party under this
arrangement qualified as a sale under SFAS No. 140. Accordingly, the
$30 million sold at December 31, 2004 is not included as debt in the
consolidated financial statements. Under the delivery order with the
United States government, SESI is responsible for on-going maintenance
and other services related to the energy efficiency project installation.
SESI receives payment for those services in addition to the amounts
sold under the master purchase agreement.
SESI has entered into assignment agreements to sell an additional
$26.5 million of receivables. This sale will be complete upon customer
acceptance of the project installation. Until construction is completed,
the advances under the purchase agreement are included in long-term
debt in the consolidated financial statements.
This off-balance sheet arrangement is not significant to NU’s liquidity
or other benefits. There are no known events, demands, commitments,
trends, or uncertainties that will, or are reasonably likely to, result in
the termination, or material reduction in the amount sold under this
off-balance sheet arrangement.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates, assumptions and at times difficult,
subjective or complex judgments. Changes in these estimates,
assumptions and judgments, in and of themselves, could materially
impact the financial statements of NU. Management communicates
to and discusses with NU’s Audit Committee of the Board of Trustees
all critical accounting policies and estimates. The following are the
accounting policies and estimates that management believes are the
most critical in nature.
Presentation: In accordance with current accounting pronouncements,
NU’s consolidated financial statements include all subsidiaries upon
which control is maintained and all variable interest entities (VIE) for
which NU is the primary beneficiary, as defined. Determining whether
the company is the primary beneficiary of a VIE is subjective and
requires management’s judgment. There are certain variables taken
into consideration to determine whether the company is considered the
primary beneficiary to the VIE. A change in any one of these variables
could require the company to reconsider whether or not it is the
primary beneficiary of the VIE. All intercompany transactions between
these subsidiaries are eliminated as part of the consolidation process.
NU has less than 50 percent ownership interests in CYAPC, YAEC,
MYAPC, and two companies that transmit electricity imported from the
Hydro-Quebec system. NU does not control these companies and does
not consolidate them in its financial statements. NU accounts for the
investments in these companies using the equity method. Under the
equity method, NU records its ownership share of the earnings or losses
at these companies. Determining whether or not NU should apply
the equity method of accounting for an investment requires
management judgment.
NU had a preferred stock investment in R. M. Services, Inc. (RMS).
Upon adoption of FIN 46, management determined that NU was the
primary beneficiary of RMS and subsequently consolidated RMS into its
financial statements. The consolidation of RMS resulted in a negative
$4.7 million after-tax cumulative effect of an accounting change in the
third quarter of 2003. On June 30, 2004, the assets and liabilities of
RMS were sold. For more information on RMS, see Note 1I, “Summary
of Significant Accounting Policies — Accounting for R.M. Services, Inc.”
to the consolidated financial statements.
In December 2003, the FASB issued a revised version of FIN 46 (FIN 46R).
FIN 46R has resulted in fewer NU investments meeting the definition of
a VIE. FIN 46R was effective for NU for the first quarter of 2004 and did
not have an impact on NU’s consolidated financial statements.
Revenue Recognition: Utility Group retail revenues are based on rates
approved by the state regulatory commissions. These regulated rates
are applied to customers’ use of energy to calculate a bill. In general,
rates can only be changed through formal proceedings with the state
regulatory commissions.
The determination of the energy sales to individual customers is based
on the reading of meters, which occurs on a systematic basis throughout
the month. Billed revenues are based on these meter readings. At the
end of each month, amounts of energy delivered to customers since
the date of the last meter reading are estimated, and an estimated
amount of unbilled revenues is recorded.
Certain Utility Group companies utilize regulatory commission-approved
tracking mechanisms to track the recovery of certain incurred costs.
The tracking mechanisms allow for rates to be changed periodically,
with overcollections refunded to customers or underrecollections
collected from customers in future periods.
Wholesale transmission revenues are based on rates and formulas
that are approved by the FERC. Most of NU’s wholesale transmission
revenues are collected through a combination of the RNS tariff and
NU’s LNS tariff. The RNS tariff, which is administered by ISO-NE,