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41
RESULTS OF OPERATIONS
The components of significant income statement variances for the past two years are provided in the table below (millions of dollars).
Income Statement Variances 2005 over/(under) 2004 2004 over/(under) 2003
Amount Percent Amount Percent
Operating Revenues $855 13% $599 10%
Operating Expenses:
Fuel, purchased and net interchange power 702 17 496 13
Other operation 109 11 104 12
Wholesale contract market changes, net 441 100 — —
Restructuring and impairment charges 44 100 — —
Maintenance 12 613 8
Depreciation 11 521 10
Amortization 65 47 (54) (28)
Amortization of rate reduction bonds 11 712 8
Taxes other than income taxes 16 711 4
Total operating expenses 1,411 23 603 11
Operating (loss)/income (556) (a) (4) (1)
Interest expense, net 22 9 7 3
Other income, net 22 (a) 10 (a)
(Loss)/income before income tax (benefit)/expense (556) (a) (1) —
Income tax (benefit)/expense (214) (a) 3 7
Preferred dividends of subsidiary —— — —
(Loss)/income from continuing operations (342) (a) (4) (3)
(Loss)/income from discontinued operations (27) (a) (1) (24)
Cumulative effects of accounting changes, net of tax benefits (1) (100) 5 100
Net (loss)/income $(370) (a)% $ — —%
(a) Percent greater than 100.
2005 Compared to 2004
Operating Revenues
Operating revenues increased $855 million in 2005 primarily due to
higher electric distribution revenues ($796 million), higher gas distribution
revenues ($95 million), and higher regulated transmission business
revenues ($24 million), partially offset by lower revenues from NU
Enterprises ($59 million).
The electric distribution revenue increase of $796 million is primarily
due to the components of CL&P, PSNH and WMECO retail revenues
which areincluded in regulatorycommission approved tracking mecha-
nisms that track the recovery of certain incurred costs ($732 million).
The tracking mechanisms allow for rates to be changed periodically
with over collections refunded to customers or under collections
collected from customers in future periods. The distribution revenue
tracking components increase of $732 million is primarily due to the
pass through of higher energy supply costs ($447 million), CL&P FMCC
charges ($235 million) and higher wholesale revenues ($69 million). The
distribution component of these companies and the retail transmission
component of PSNH which flow through to earnings increased $65
million primarily due to an increase in retail rates and an increase in
retail sales. Regulated retail sales increased 2.6 percent in 2005
compared with 2004, primarily due to an unseasonably hot third
quarter. On a weather adjusted basis, retail sales were relatively flat.
The higher gas distribution revenue of $95 million is primarily due to
the recovery of increased gas costs ($80 million) and the effect of the
January1, 2005 base rate increase ($14 million).
Transmission business revenues increased $24 million primarily due to
the recovery of higher operating expenses in 2005 as allowed under
FERC Tariff Schedule 21, a higher transmission investment base and
the incremental recovery of 2004 expenses.
The NU Enterprises’ revenue decrease of $59 million is primarily due to
lower revenues from the mark-to-market accounting for certain wholesale
contracts related to the business to be exited. As a result of mark-to-
market accounting, receipts under those contracts arenetted with
expenses to serve those contracts and recorded in fuel, purchased and
net interchange power,resulting in reduced revenues by approximately
$693 million. Additionally,revenues decreased primarily due to the
wholesale marketing business ($385 million) and the services business
($26 million) as a result of lower sales volumes. These decreases are
partially offset by the NU consolidating impact of eliminating lower
intercompany revenues from CL&P and WMECO ($687 million) and
higher revenues from the retail marketing business as a result of higher
rates and volumes ($355 million).
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased $702
million in 2005, primarily due to higher purchased power costs for the
Utility Group ($1.34 billion), partially offset by lower costs at NU Enterprises
($642 million). The $1.34 billion increase for the Utility Group is due to
the NU consolidating impact of eliminating lower intercompany TSO
purchases from NU Enterprises ($687 million) and higher CL&P and
WMECO standard offer supply costs and increased retail sales ($479
million). The increase is also due to higher PSNH expenses primarily
due to higher energy costs and higher retail sales ($98 million) and
higher Yankee Gas expenses primarily due to increased gas prices
($80 million).