Eversource 2004 Annual Report Download - page 56

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1. Summary of Significant Accounting Policies
A. About Northeast Utilities
Consolidated: Northeast Utilities (NU or the company) is the parent company
of the companies comprising the Utility Group and NU Enterprises. NU
is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act) and is subject to the provisions of the 1935 Act. Arrangements
among the Utility Group, NU Enterprises and other NU companies, outside
agencies and other utilities covering interconnections, interchange of
electric power and sales of utility property are subject to regulation by
the Federal Energy Regulatory Commission (FERC) and/or the SEC. The
Utility Group is subject to further regulation for rates, accounting and other
matters by the FERC and/or applicable state regulatory commissions.
Several wholly owned subsidiaries of NU provide support services for
NU’s companies. Northeast Utilities Service Company (NUSCO) provides
centralized accounting, administrative, engineering, financial, information
technology, legal, operational, planning, purchasing, and other services
to NU’s companies. Three other subsidiaries construct, acquire or lease
some of the property and facilities used by NU’s companies.
Utility Group: The Utility Group furnishes franchised retail electric service
in Connecticut, New Hampshire and Massachusetts through three
companies: The Connecticut Light and Power Company (CL&P), Public
Service Company of New Hampshire (PSNH) and Western Massachusetts
Electric Company (WMECO). Another company, North Atlantic Energy
Corporation (NAEC), previously sold all of its entitlement to the capacity
and output of the Seabrook nuclear unit (Seabrook) to PSNH under the
terms of two, life-of-unit, full cost recovery contracts (Seabrook Power
Contracts). Seabrook was sold on November 1, 2002. Another Utility
Group subsidiary is Yankee Gas Services Company (Yankee Gas), which
is Connecticut’s largest natural gas distribution system. The Utility Group
includes three reportable business segments: the regulated electric
utility distribution segment, the regulated gas utility distribution segment
and the regulated electric utility transmission segment.
Effective January 1, 2004, PSNH completed the purchase of the electric
system and retail franchise of Connecticut Valley Electric Company
(CVEC), a subsidiary of Central Vermont Public Service Corporation
(CVPS), for $30.1 million. CVEC’s 11,000 customers in western New
Hampshire have been added to PSNH’s customer base of more than
460,000 customers. The purchase price included the book value of
CVEC’s plant assets of approximately $9 million and an additional
$21 million to terminate an above-market wholesale power purchase
agreement CVEC had with CVPS. The $21 million payment is being
recovered from PSNH’s customers.
NU Enterprises: NU Enterprises, Inc. is the parent company of Northeast
Generation Company (NGC), Northeast Generation Services Company
(NGS), Select Energy, Inc. (Select Energy), Select Energy Services, Inc.
(SESI) and their respective subsidiaries, and Woods Network Services,
Inc. (Woods Network), all of which are collectively referred to as “NU
Enterprises.” The generation operations of Holyoke Water Power
Company (HWP) are also included in the results of NU Enterprises.
The companies included in the NU Enterprises segment are grouped into
two business segments: the merchant energy segment and the energy
services business segment. The merchant energy business segment is
comprised of Select Energy’s wholesale marketing business, which
includes approximately 1,296 megawatts (MW) of pumped storage and
hydroelectric generation assets owned by NGC, 147 MW of coal-fired
generation assets owned by HWP, and Select Energy’s retail marketing
business.
The energy services and other business segment includes the operations
of SESI, NGS, and Woods Network. SESI performs energy management
services for large commercial customers, institutional facilities and the
United States government and energy-related construction services.
NGS operates and maintains NGC’s and HWP’s generation assets and
provides third-party electrical services. Woods Network is a network
design, products and services company.
For information regarding NU’s business segments, see Note 15,
“Segment Information,” to the consolidated financial statements.
B. Presentation
The consolidated financial statements of NU and of its subsidiaries, as
applicable, include the accounts of all their respective subsidiaries.
Intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingencies at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Subsequent to the filing of its 2003 Form 10-K and annual report, NU
concluded that it incorrectly classified as unrestricted cash from
counterparties amounts that should have been classified as cash and
cash equivalents at December 31, 2003. These corrections reclassified
unrestricted cash from counterparties to cash and cash equivalents
because those funds were unrestricted and were used to fund or were
available to fund the company’s operations. The December 31, 2003
consolidated balance sheet has been restated for these corrections and a
correction to decrease derivative assets and liabilities by the same amount
in order to eliminate intercompany derivative assets and liabilities. See
Note 16, “Restatement of Previously Issued Financial Statements,” to
the consolidated financial statements for further information.
Additionally, certain reclassifications of prior year’s data have been
made to conform with the current year’s presentation. See Note 16 for
the effects of the significant reclassifications.
C. New Accounting Standards
Other-Than-Temporary Impairments: The Emerging Issues Task Force (EITF)
of the Financial Accounting Standards Board (FASB) issued and later
deferred the effective date of accounting guidance in EITF Issue No.
03-1, “The Meaning of Other-Than-Temporary Impairment and Its
NOTES TOCONSOLIDATED FINANCIAL STATEMENTS