Eversource 2004 Annual Report Download - page 66

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PSNH is authorized by the NHPUC to incur short-term borrowings up to
a maximum of $100 million.
Utility Group Credit Agreement: On November 8, 2004, CL&P, PSNH, WMECO,
and Yankee Gas entered into a 5-year unsecured revolving credit facility
for $400 million. This facility replaces a $300 million credit facility that
expired on November 8, 2004. CL&P may draw up to $200 million, with
PSNH, WMECO and Yankee Gas able to draw up to $100 million, subject
to the $400 million maximum borrowing limit. Unless extended, the credit
facility will expire on November 6, 2009. At December 31, 2004 and 2003,
there were $80 million and $40 million, respectively, in borrowings under
these credit facilities.
NU Parent Credit Agreement: On November 8, 2004, NU entered into a 5-year
unsecured revolving credit and letter of credit (LOC) facility for $500 million.
This facility replaces a $350 million 364-day facility that expired on
November 8, 2004. This facility provides a total commitment of $500 million
which is available for advances, subject to an LOC sub-limit. Subject to
the advances outstanding, LOCs may be issued in notional amounts up
to $350 million for periods up to 364 days. The agreement provides for
LOCs to be issued in the name of NU or any of its subsidiaries. This total
commitment may be increased to $600 million, subject to approval, at
the request of the borrower. Unless extended, the credit facility will
expire on November 6, 2009.
Current SEC authorization permits borrowings up to a maximum of
$450 million. On November 20, 2004, an application was filed with the
SEC requesting an increase of maximum borrowings to $500 million, to
match this facility limit. At December 31, 2004 and 2003, there were
$100 million and $65 million, respectively, in borrowings under these
credit facilities. In addition, there were $48.9 million and $106.9 million
in LOCs outstanding at December 31, 2004 and 2003, respectively.
Under the Utility Group and NU parent credit agreements, NU and its
subsidiaries may borrow at fixed or variable rates plus an applicable
margin based upon certain debt ratings, as rated by the lower of Standard
and Poor’s or Moody’s Investors Service. The weighted average interest
rates on NU’s notes payable to banks outstanding on December 31,
2004 and 2003 were 4.53 percent and 2.07 percent, respectively.
Under the Utility Group and NU parent credit agreements, NU and its
subsidiaries must comply with certain financial and non-financial
covenants as are customarily included in such agreements, including
but not limited to, consolidated debt ratios and interest coverage ratios.
The most restrictive financial covenant is the interest coverage ratio.
The parties to the credit agreements currently are and expect to remain
in compliance with these covenants.
Amounts outstanding under these credit facilities are classified as current
liabilities as notes payable to banks on the accompanying consolidated
balance sheets as management anticipates that all borrowings under
these credit facilities will be outstanding for no more than 364 days at
any one time.
Other Credit Facility: On June 30, 2004, E.S. Boulos Company (Boulos), a
subsidiary of NGS, renewed its $6 million line of credit. This credit facility
replaces a similar credit facility that expired on June 30, 2004, and unless
extended, will expire on June 30, 2005. This credit facility limits Boulos’
ability to pay dividends if borrowings are outstanding and limits access
to the Pool for additional borrowings. At December 31, 2004 and 2003,
there were no borrowings under this credit facility.
3. Derivative Instruments
Derivatives that are utilized for trading purposes are recorded at fair
value with changes in fair value included in earnings. Other contracts
that are derivatives but do not meet the definition of a cash flow hedge
and cannot be designated as being used for normal purchases or normal
sales are also recorded at fair value with changes in fair value included
in earnings. For those contracts that meet the definition of a derivative
and meet the cash flow hedge requirements, the changes in the fair value
of the effective portion of those contracts are generally recognized in
accumulated other comprehensive income until the underlying transactions
occur. For contracts that meet the definition of a derivative but do not meet
the hedging requirements, and for the ineffective portion of contracts that
meet the cash flow hedge requirements, the changes in fair value of
those contracts are recognized currently in earnings. Derivative contracts
designated as fair value hedges and the item they are hedging are both
recorded at fair value on the consolidated balance sheets. Derivative
contracts that are entered into as a normal purchase or sale and will
result in physical delivery, and are documented as such, are recognized
in revenue and expense when such deliveries occur.
For the year ended December 31, 2004, a negative $57.8 million, net of
tax, was reclassified as an expense from other comprehensive income
in connection with the consummation of the underlying hedged transactions
and recognized in earnings. Also during 2004, new cash flow hedge
transactions were entered into that hedge cash flows through 2007. As
a result of these new transactions and market value changes since
January 1, 2004, accumulated other comprehensive income decreased
by $28.3 million, net of tax. Accumulated other comprehensive income
at December 31, 2004, was a negative $3.5 million, net of tax (decrease
to equity), relating to hedged transactions, and it is estimated that a
negative $2.9 million included in this net of tax balance will be reclassified
as a decrease to earnings within the next twelve months. Cash flows
from hedge contracts are reported in the same category as cash flows
from the underlying hedged transaction.
There was a negative pre-tax impact of $0.5 million recognized in earnings
for the ineffective portion of cash flow hedges. A negative pre-tax
$0.6 million was recognized in 2004 earnings for the ineffective portion
of fair value hedges. The changes in the fair value of both the fair value
hedges and the natural gas inventory being hedged are recorded in fuel,
purchased, and net interchange power on the accompanying consolidated
statements of income.
The tables below summarize current and long-term derivative assets
and liabilities at December 31, 2004 and December 31, 2003. The business
activities of NU Enterprises that result in the recognition of derivative
assets include concentrations of credit risk to energy marketing and
trading counterparties. At December 31, 2004, Select Energy has
$87.3 million of derivative assets from trading, non-trading, and hedging
activities. These assets are exposed to counterparty credit risk. However,
a significant portion of these assets is contracted with investment grade
rated counterparties or collateralized with cash. The amounts below do
not include option premiums paid, which are recorded as prepayments
and amounted to $5.4 million and $9.1 million related to energy trading
activities and $5.2 million and $7.6 million related to marketing activities
at December 31, 2004 and December 31, 2003, respectively. These amounts
also do not include option premiums paid of $18.7 million related to
non-trading gas options at December 31, 2004.