Eversource 2004 Annual Report Download - page 78

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On June 10, 2004, the DPUC and Office of Consumer Counsel (OCC)
filed a petition seeking a declaratory order that CYAPC be allowed to
recover all decommissioning costs from its wholesale purchasers,
including CL&P, PSNH and WMECO, but that such purchasers may not
be allowed to recover in their retail rates any costs that the FERC might
determine to have been imprudently incurred. On August 30, 2004, the
FERC denied this petition. On September 29, 2004, the DPUC and OCC
asked the FERC to reconsider the petition. On October 29, 2004, the
FERC issued an order granting further consideration regarding the
DPUC’s and OCC’s petition for reconsideration. No hearing date has
been established for this reconsideration.
On February 22, 2005, the DPUC filed testimony with the FERC. In its
filed testimony, the DPUC argues that approximately $215 million to
$225 million of CYAPC’s requested increase is due to CYAPC’s imprudence
in managing the decommissioning project while Bechtel was the
contractor. Therefore, the DPUC recommends a total disallowance of
between $225 million to $234 million. Hearings are scheduled to begin
on June 1, 2005. NU’s share of the DPUC’s recommended disallowance
is between $110 million to $115 million.
CYAPC is currently in litigation with Bechtel over the termination of its
decommissioning contract. On June 13, 2003, CYAPC gave notice of the
termination of its contract with Bechtel for the decommissioning of its
nuclear power plant. CYAPC terminated the contract due to Bechtel’s
incomplete and untimely performance and refusal to perform the
remaining decommissioning work. Bechtel has departed the site and
the decommissioning responsibility has been transitioned to CYAPC,
which has recommenced the decommissioning process.
On June 23, 2003, Bechtel filed a complaint against CYAPC asserting a
number of claims and seeking a variety of remedies, including monetary
and punitive damages and rescission of the contract. Bechtel has since
amended its complaint to add claims for wrongful termination. On
August 22, 2003, CYAPC filed its answer and counterclaims, including
counts for breach of contract, negligent misrepresentation and breach
of duty of good faith and fair dealing. Discovery is currently underway
and a trial has been scheduled for May 2006.
In the prejudgment remedy proceeding before the Connecticut Supreme
Court (the Court), Bechtel sought garnishment of the CYAPC decom-
missioning trust and related payments. In October 2004, Bechtel and
CYAPC entered into an agreement under which Bechtel waived its right
to seek garnishment of the decommissioning trust and related payments
in return for the potential attachment of CYAPC’s real property in
Connecticut and the escrowing of $41.7 million the sponsors are scheduled
to pay to CYAPC through June 30, 2007 in respect to CYAPC’s common
equity. This stipulation is subject to approval of the Court and would not
be implemented until the Court found that such assets were subject to
attachment. CYAPC has contested the attachability of such assets. The
DPUC is an intervener in this proceeding.
Management cannot at this time predict the timing or outcome of the
FERC proceeding required for the collection of the increased CYAPC
decommissioning costs. Management believes that the costs have been
prudently incurred and will ultimately be recovered from the customers
of CL&P, PSNH and WMECO. However, there is a risk that some portion
of these increased costs may not be recovered, or will have to be refunded
if recovered, as a result of the FERC proceedings. NU also cannot predict
the timing and the outcome of the litigation with Bechtel.
The Yankee Companies also filed litigation in 1998 charging that the federal
government breached contracts it entered into with each company in
1983 under the Act. Under the Act, the DOE was to begin removing spent
nuclear fuel from the nuclear plants of YAEC, MYAPC and CYAPC no
later than January 31, 1998 in return for payments by each company
into the nuclear waste fund. No fuel has been collected by the DOE, and
spent nuclear fuel is stored on the sites of the Yankee Companies’ plants.
YAEC, MYAPC and CYAPC collected the funds for payments into the
nuclear waste fund from wholesale utility customers under FERC-approved
contract rates. The wholesale utility customers in turn collect these
payments from their retail electric customers. The Yankee Companies’
individual damage claims attributed to the government's breach totaling
$548 million are specific to each plant and include incremental storage,
security, construction and other costs through 2010, which is the earliest
date the DOE projects that it will begin removing nuclear fuel. The YAEC
damage claim is $191 million, the MYAPC claim is $160 million and the
CYAPC claim is $197 million.
The DOE trial ended on August 31, 2004 and a verdict has not been
reached. The current Yankee Companies’ rates do not include an amount
for recovery of damages in this matter. Management can predict neither
the outcome of this matter nor its ultimate impact on NU.
F. NRG Energy, Inc. Exposures
Certain subsidiaries of NU, including CL&P and Yankee Gas, have
entered into transactions with NRG Energy, Inc. (NRG) and certain of its
subsidiaries. On May 14, 2003, NRG and certain of its subsidiaries filed
voluntary bankruptcy petitions. On December 5, 2003, NRG emerged
from bankruptcy. NU’s NRG-related exposures as a result of these
transactions relate to 1) the recovery of congestion charges incurred by
NRG prior to the implementation of SMD on March 1, 2003, 2) the recovery
of CL&P’s station service billings from NRG, and 3) the recovery of
Yankee Gas’ and CL&P’s expenditures that were incurred related to an
NRG subsidiary’s generating plant construction project that is now
abandoned. While it is unable to determine the ultimate outcome of
these issues, management does not expect their resolution will have a
material adverse effect on NU’s consolidated financial condition or
results of operations.
G. Impacts of Decision to Exit NU Enterprises’ Wholesale
Marketing Contracts and to Explore Ways to Divest the NU
Enterprises’ Services Businesses
The March 2005 decision to exit NU Enterprises’ wholesale marketing
business and to explore ways to divest NU Enterprises’ services
businesses creates certain potential loss contingencies. They 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.