Eversource 2005 Annual Report Download - page 21

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The energy services businesses and NU Enterprises parent lost
$37.6 million in 2005, compared with earnings of $2.2 million in 2004
and earnings of $3.3 million in 2003. The 2005 loss was due to after-tax
restructuring and impairment charges of $26.7 million primarily associated
with the impairment of goodwill and intangible assets and as a result
of construction contract losses. The portion of the charges directly
relating to the energy services businesses totaling $16.4 million after-tax
is included in the (loss)/income from discontinued operations on the
accompanying consolidated statements of (loss)/income as the
charges relate to the energy services companies that are presented
as discontinued operations.
For information regarding the current status of the exit from the NU
Enterprises businesses, see “NU Enterprises Divestitures,” included
in this management’s discussion and analysis.
Parent and Other: Parent company and other after-tax expenses totaled
$18.7 million in 2005, or $0.14 per share, compared with $23.9 million
in 2004, or $0.18 per share, and $12.7 million, or $0.10 per share, in
2003. The losses in 2005 included after-tax investment write-downs
totaling $4.3 million while the losses in 2004 included after-tax
investment write-downs totaling $8.8 million.
Future Outlook
NU projects that 2006 combined earnings for the Utility Group and parent
company will be between $1.09 per share and $1.22 per share.
Utility Group: NU believes that the combination of the current mild winter
to date in 2006, slowing non-weather related sales and the denial of
interim rate relief for Yankee Gas in 2005 may cause the Utility Group’s
regulated distribution and generation businesses earnings to be below
its previously estimated 2006 earnings range of between $0.89 and
$0.96 per share. Utility Group earnings will also be affected by the
outcome of various retail distribution rate proceedings and by the
outcome of a transmission ROE proceeding at the FERC. NU continues
to estimate 2006 transmission business earnings of between $0.32
and $0.35 per share.
NU Enterprises: NU is not providing 2006 earnings guidance for NU
Enterprises due to the uncertainty of any potential financial impacts
of exiting those businesses.
Parent and Other: NU believes that due to higher projected investment
income and some other factors, 2006 parent company losses will be
less than the previous estimate of between $0.09 and $0.12 per share.
Liquidity
Consolidated: NU continues to maintain an adequate level of liquidity.
At December 31, 2005, NU’stotal unused borrowing capacity through
its revolving credit agreement, its separate liquidity facility, the Utility
Group’s revolving credit agreement, and CL&P’s accounts receivable
facility totaled $1.1 billion. At December 31, 2005, NU also had
$45.8 million of cash and cash equivalents on hand compared with
$47 million at December 31, 2004.
Cash flows from operations decreased by $19.4 million to $441.2 million
in 2005 from $460.6 million in 2004. The decrease in operating cash
flows is primarily due to the 2005 payments made for the exit from
long-term wholesale power contracts by NU Enterprises of approximately
$186 million and an accounts receivable increase due to the retail
distribution rate increases that took effect in 2005 offset by increases in
working capital items including an accounts payable increase related to
timing of payments to standard offer suppliers and a change in year
over year accrued taxes.
Cash flows from operations decreased by $228.4 million from
$689 million in 2003 to $460.6 million in 2004. Increases in cash
flows related to deferred income taxes were offset by decreases
related to regulatory (refunds)/overrecoveries. The decrease in year
over year cash flows from regulatory (refunds)/overrecoveries was
primarily due to lower CTA and Generation Service Charge (GSC)
collections in 2004 as CL&P refunded amounts to its ratepayers for
past over collections or used those amounts to recover current costs.
These refunds were also the primary reason for the positive change in
year over year deferred income taxes, which had increased operating
cash flows as refunded amounts were currently deducted for tax
purposes. Lower taxes paid also benefited cash flows from operations
in 2004 due to bonus tax depreciation on newly completed plant assets.
On October 20, 2005, the SEC approved NU’s application which sought
the authority to issue up to $750 million of new securities, including
common equity, preferred stock and long-term debt. On December 12,
2005, under an S-3 registration statement that became effective on
November 3, 2005, NU sold 23 million common shares at a price of
$19.09 per share. Proceeds from this issuance, which were approximately
$425 million after underwriter commissions and expenses, were used
to reduce short-term debt and will be used in the future to continue
to contribute equity to the Utility Group companies. In 2005, NU
contributed $198 million of equity to CL&P, $53.6 million to PSNH and
$6.9 million to WMECO. No contributions were made to Yankee Gas.
On October 28, 2005, NU received approval from the SEC to increase
its short-term borrowing limit from $450 million to $700 million. On
December 9, 2005, NU entered into an amended revolving credit
agreement that increased NU’s credit line from $500 million to $700
million and extended the maturity date of the agreement by one year
to November 6, 2010. As of December 31, 2005, NU had $32 million
of borrowings and $253 million of letters of credit (LOCs) outstanding
under that agreement.
On November 2, 2005, NU entered into a separate $600 million liquidity
facility,which added to other sources of liquidity. After NU amended
its revolving credit agreement and closed on its equity issuance as
described above, the commitment level under this supplemental credit
facility was reduced to $310 million. At December 31, 2005, there
were no borrowings outstanding under this facility.
Exiting the NU Enterprises’ wholesale marketing business had a negative
impact on cash flows in 2005 and is expected to continue to have a
negative impact in 2006. During 2005, approximately $186 million was
paid to exit contracts either directly with municipal electric companies in
New England or with other counterparties. During 2005, commitments
werealso made to pay another approximately $56 million to a
counterparty to exit obligations with a New England municipality.
The exit from NU Enterprises’ competitive generation and retail marketing
business is expected to benefit NU’s liquidity and reduce debt. The net
proceeds from NU Enterprises’ competitive generation asset sales are
expected to be an important factor in NU’s financing plans. The NGC
and HWP generation assets of 1,442 MW of pumped storage,
conventional hydroelectric, coal-fired, and peaking generation assets
are expected to have a book value of approximately $825 million.
The cash proceeds available to NU after the sale will be reduced by
NGC’sdebt of $320 million and by any taxes that will have to be paid.