Eversource 2004 Annual Report Download - page 76

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these sites, which represents management’s best estimate of the liability
for environmental costs. This amount differs from an estimated range
of loss from $4.9 million to $25.8 million as management utilizes the
probabilistic model approach to make its estimate of the liability for
environmental costs. For the 45 remaining sites for which an estimate
is based on the probabilistic model approach, determining a range of
estimated losses is not possible.
These liabilities are estimated on an undiscounted basis and do not
assume that any amounts are recoverable from insurance companies or
other third parties. The environmental reserve includes sites at different
stages of discovery and remediation and does not include any unasserted
claims.
At December 31, 2004, there are ten sites for which there are unasserted
claims; however, any related remediation costs are not probable or
estimable at this time. NU’s environmental liability also takes into account
recurring costs of managing hazardous substances and pollutants,
mandated expenditures to remediate previously contaminated sites and
any other infrequent and non-recurring clean up costs.
MGP Sites: MGP sites comprise the largest portion of NU’s environmental
liability. MGPs are sites that manufactured gas from coal produced certain
byproducts that may pose risk to human health and the environment. At
December 31, 2004 and 2003, $33.2 million and $36.3 million, respectively,
represent amounts for the site assessment and remediation of MGPs.
At December 31, 2004 and 2003, the five largest MGP sites comprise
approximately 58 percent and 57 percent, respectively, of the total MGP
environmental liability.
At December 31, 2004, NU has one site that is held for sale. The site, a
former MGP site, is currently held for sale under a pending purchase
and sale agreement. NU is currently remediating the property and has
been deferring the costs associated with those remediation efforts as
allowed by a regulatory order. At December 31, 2004, NU had $7.9 million
related to remediation efforts at the property and other sale costs
recorded in other deferred debits on the accompanying consolidated
balance sheets. A final decision was reached by the DPUC on January
19, 2005, which approved the sale proceedings of the former MGP site.
The final decision approved the price of $24 million for the sale of the land
and also approved the deferral of the gain in the amount of $13.8 million
($8.3 million after-tax). The purchase and sale agreement releases NU
from all environmental claims arising out of or in connection with the
property.
CERCLA Matters: The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) and its amendments
or state equivalents impose joint and several strict liabilities, regardless
of fault, upon generators of hazardous substances resulting in removal
and remediation costs and environmental damages. Liabilities under
these laws can be material and in some instances may be imposed
without regard to fault or for past acts that may have been lawful at the
time they occurred. NU has five superfund sites under CERCLA for
which it has been notified that it is a potentially responsible party (PRP).
For sites where there are other PRPs and NU’s subsidiaries are not
managing the site assessment and remediation, the liability accrued
represents NU’s estimate of what it will need to pay to settle its
obligations with respect to the site.
It is possible that new information or future developments could require
a reassessment of the potential exposure to related environmental matters.
As this information becomes available management will continue to
assess the potential exposure and adjust the reserves accordingly, as
necessary.
Rate Recovery: PSNH and Yankee Gas have rate recovery mechanisms for
environmental costs. CL&P recovers a certain level of environmental
costs currently in rates but does not have an environmental cost recovery
tracking mechanism. Accordingly, changes in CL&P’s environmental
reserves impact CL&P’s earnings. WMECO does not have a regulatory
mechanism to recover environmental costs from its customers, and
changes in WMECO’s environmental reserves impact WMECO’s earnings.
C. Spent Nuclear Fuel Disposal Costs
Under the Nuclear Waste Policy Act of 1982 (the Act), CL&P, PSNH,
WMECO, and NAEC must pay the DOE for the disposal of spent nuclear
fuel and high-level radioactive waste. The DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. For nuclear fuel used to
generate electricity prior to April 7, 1983 (Prior Period Fuel) for CL&P and
WMECO, an accrual has been recorded for the full liability, and payment
must be made prior to the first delivery of spent fuel to the DOE. Until
such payment is made, the outstanding balance will continue to accrue
interest at the 3-month treasury bill yield rate. At December 31, 2004
and 2003, fees due to the DOE for the disposal of Prior Period Fuel were
$259.7 million and $256.4 million, respectively, including interest costs
of $177.6 million and $174.3 million, respectively.
During 2004, WMECO established a trust, which holds marketable
securities, to fund amounts due to the DOE for the disposal of WMECO’s
prior period fuel. For further information on this trust see Note 8,
“Marketable Securities,” to the consolidated financial statements.
D. Long-Term Contractual Arrangements
VYNPC: Previously under the terms of their agreements, NU’s companies
paid their ownership (or entitlement) shares of costs, which included
depreciation, O&M expenses, taxes, the estimated cost of decommissioning,
and a return on invested capital to VYNPC and recorded these costs as
purchased-power expenses. On July 31, 2002, VYNPC consummated the
sale of its nuclear generating unit to a subsidiary of Entergy Corporation
(Entergy) for approximately $180 million. Under the terms of the sale,
CL&P, PSNH and WMECO will continue to buy approximately 16 percent
of the plant’s output through March 2012 at a range of fixed prices.
The total cost of purchases under contracts with VYNPC amounted to
$26.8 million in 2004, $29.9 million in 2003 and $27.6 million in 2002.
Electricity Procurement Contracts: CL&P, PSNH and WMECO have entered
into various arrangements for the purchase of electricity. The total cost
of purchases under these arrangements amounted to $323.3 million in
2004, $283.4 million in 2003 and $278.3 million in 2002. These amounts
relate to IPP contracts and do not include contractual commitments
related to CL&P’s standard offer, PSNH’s short-term power supply
management or WMECO’s standard offer and default service.
Natural Gas Procurement Contracts: Yankee Gas has entered into long-term
contracts for the purchase of a specified quantity of natural gas in the
normal course of business as part of its portfolio to meet its actual