Eversource 2004 Annual Report Download - page 42

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no impact to NU’s earnings upon adoption of SFAS No. 143; however,
if there are changes in certain laws and regulations, orders, interpretations
or contracts entered into by NU, there may be future AROs that need
to be recorded.
On June 17, 2004, the FASB issued the proposed interpretation,
“Accounting for Conditional Asset Retirement Obligations.” The proposed
interpretation requires an entity to recognize a liability for the fair value
of an ARO that is conditional on a future event if the liability’s fair
value can be reasonably estimated and clarifies that there are no
circumstances in which a law or regulation obligates an entity to
perform retirement activities but then allows the entity to permanently
avoid settling the obligation.
If adopted in its current form, there may be an impact to NU for
AROs that NU currently concludes have not been incurred (conditional
obligations). These conditional obligations may include utility poles and
asbestos that, if removed or disturbed by construction or demolition,
creates a disposal obligation. Management is in the process of evaluating
the impact of the interpretation on NU.
Under SFAS No. 71, regulated utilities, including NU’s Utility Group
companies, currently recover amounts in rates for future costs of
removal of plant assets. Future removals of assets do not represent
legal obligations and are not AROs. Historically, these amounts were
included as a component of accumulated depreciation until spent.
At December 31, 2004 and 2003, these amounts totaling $328.8 million
and $334 million, respectively, are classified as regulatory liabilities
on the accompanying consolidated balance sheets.
Special Purpose Entities: In addition to SPEs that are described in the
“Off-Balance Sheet Arrangements” section of this Management’s
Discussion and Analysis, during 2001 and 2002, to facilitate the
issuance of rate reduction bonds and certificates intended to finance
certain stranded costs, NU established four SPEs: CL&P Funding LLC,
PSNH Funding LLC, PSNH Funding LLC 2, and WMECO Funding LLC
(the funding companies). The funding companies were created as part
of state-sponsored securitization programs. The funding companies
are restricted from engaging in non-related activities and are required
to operate in a manner intended to reduce the likelihood that they
would be included in their respective parent company’s bankruptcy
estate if they ever become involved in a bankruptcy proceeding. The
funding companies and the securitization amounts are consolidated
in the accompanying consolidated financial statements.
During 1999, SESI established an SPE, HEC/Tobyhanna Energy Project,
LLC (HEC/Tobyhanna), in connection with a federal energy savings
performance project located at the United States Army Depot in
Tobyhanna, Pennsylvania. HEC/Tobyhanna sold $26.5 million of
Certificates related to the project and used the funds to repay SESI
for the costs of the project. HEC/Tobyhanna’s activities and Certificates
are included in NU’s consolidated financial statements.
Accounting Implications of NU Enterprises Comprehensive Business Review:
The accounting for the business segments of NU Enterprises at
December 31, 2004 assumed that those businesses are going concerns
and will continue to be NU Enterprises’ segments in the future. The
comprehensive review of each of the NU Enterprises businesses
resulted in decisions that changed the existing going concern accounting
conclusions for certain of those businesses on March 9, 2005. The
impacts of the decisions could be material and could include:
• The impairment of long-lived assets if they are no longer held and
used and become held for sale at expected sales prices that are less
than carrying values.
• The impairment of goodwill if expected cash flows that support
the fair values of the reporting units that hold goodwill are reduced
significantly by a change in business strategy or a decision to sell all
or portions of the reporting units at prices less than carrying values.
• The impairment of intangible assets if expected cash flows that
support them are reduced to below their carrying values.
• The recognition of closure costs such as severance, benefit plan
curtailments, and lease termination payments.
• The recognition of losses associated with settling energy contracts
currently accounted for on an accrual method of accounting that
have negative fair values at the time of settlement.
• The termination of the normal purchase and sales exception to fair
value accounting for derivatives and the resulting recognition of losses
or gains on changes in fair value of the contracts since inception.
The methods of implementing the company’s decision involving
the wholesale marketing and services businesses are under review.
Accordingly, management cannot determine the amounts of
impairments or other losses.
For further information regarding the matters in this “Critical Accounting
Policies and Estimates” section, see Note 1, “Summary of Significant
Accounting Policies,” Note 3, “Derivative Instruments,” Note 4,
“Employee Benefits,” Note 5, “Goodwill and Other Intangible Assets,”
and Note 6B, “Commitments and Contingencies — Environmental
Matters,” to the consolidated financial statements.
Other Matters
Commitments and Contingencies: For further information regarding other
commitments and contingencies, see Note 6, “Commitments and
Contingencies,” to the consolidated financial statements.
Contractual Obligations and Commercial Commitments: Information regarding
NU’s contractual obligations and commercial commitments at
December 31, 2004 is summarized through 2009 and thereafter as follows: