Eversource 2005 Annual Report Download - page 56

54
1.Summary of Significant Accounting Policies
A. About Northeast Utilities
Consolidated: Northeast Utilities (NU or the company) is the parent
company of the companies comprising the Utility Group and NU
Enterprises. Until February 8, 2006, NU was registered with the
Securities and Exchange Commission (SEC) as a holding company
under the Public Utility Holding Company Act of 1935 (PUHCA). On
February 8, 2006, PUHCA was repealed. Arrangements among the
Utility Group, NU Enterprises and other NU companies, outside agencies
and other utilities covering interconnections, interchange of electric
power and sales of utility property are subject to regulation by the
Federal Energy Regulatory Commission (FERC) and/or the SEC. The
Utility Group is subject to further regulation for rates, accounting
and other matters by the FERC and/or applicable state regulatory
commissions.
Several wholly owned subsidiaries of NU provide support services
for NU’scompanies. Northeast Utilities Service Company (NUSCO)
provides centralized accounting, administrative, engineering, financial,
information technology,legal, operational, planning, purchasing, and
other services to NU’scompanies. Three other subsidiaries construct,
acquire or lease some of the property and facilities used by NU’s
companies.
Utility Group: The Utility Group furnishes franchised retail electric service
in Connecticut, New Hampshireand Massachusetts through three
companies: The Connecticut Light and Power Company (CL&P), Public
Service Company of New Hampshire(PSNH) and WesternMassachusetts
Electric Company (WMECO). Another Utility Group company is
Yankee Gas Services Company (Yankee Gas), which owns and operates
Connecticut’slargest natural gas distribution system. The Utility Group
includes three reportable business segments: the regulated electric
utility distribution segment, the regulated gas utility distribution segment
and the regulated electric utility transmission segment.
Effective January 1, 2004, PSNH completed the purchase of the electric
system and retail franchise of Connecticut Valley Electric Company
(CVEC), a subsidiary of Central Vermont Public Service Corporation
(CVPS), for $30.1 million. CVEC’s 11,000 customers in western New
Hampshire have been added to PSNH’s customer base. The purchase
price included the book value of CVEC’s plant assets of approximately
$9 million and an additional $21 million to terminate an above-market
wholesale power purchase agreement CVEC had with CVPS. The $21
million payment is being recovered from PSNH’s customers.
NU Enterprises: NU Enterprises, Inc. is the parent company of Select
Energy,Inc. (Select Energy), Select Energy Services, Inc. (SESI) and
their respective subsidiaries, Northeast Generation Company (NGC),
Northeast Generation Services Company (NGS) and its subsidiaries E.
S. Boulos Company (Boulos) and Woods Electrical Co., Inc. (Woods
Electrical), Select Energy Contracting, Inc. (SECI), Reeds Ferry Supply
Co., Inc. (Reeds Ferry) and Woods Network Services, Inc. (Woods
Network), all of which arecollectively referred to as NU Enterprises.
The generation operations of Holyoke Water Power Company (HWP),
adirect subsidiary of NU, are also included in the results of NU
Enterprises. The companies included in the NU Enterprises segment
are grouped into two business segments: the merchant energy business
segment and the energy services business segment. The merchant
energy business segment is currently comprised of Select Energy’s
wholesale marketing business, which includes 1,296 megawatts (MW)
of pumped storage and hydroelectric generation assets owned by
NGC, 146 MW of coal-fired generation assets owned by HWP, Select
Energy’s retail marketing business and NGS. On March 9, 2005, NU
announced its decision to exit the wholesale marketing portion of the
merchant energy business segment as well as the energy services
businesses. On November 7, 2005, NU announced it would exit the
remainder of the merchant energy business segment, which includes
the retail marketing business and the competitive generation business.
For information regarding the decisions to exit these businesses,
see Note 2, “Wholesale Contract Market Changes,” and Note 3,
“Restructuring and Impairment Charges,” to the consolidated financial
statements.
The energy services business segment includes the operations of
SESI, Boulos, Woods Electrical, SECI, Reeds Ferry, and Woods Network.
SESI performs energy management services for large commercial
customers, institutional facilities and the United States government
and energy-related construction services. Boulos and Woods Electrical
provide third-party electrical services. SECI provides mechanical and
electrical contracting services for new construction and service contracts.
Reeds Ferry purchases equipment on behalf of SECI. Woods Network
is a network design, products and services company.
On November 8, 2005, certain assets of SECI-New Hampshire (SECI-NH),
adivision of SECI, and 100 percent of the common stock of Reeds
Ferry were sold to an unrelated third party. On November 22, 2005,
100 percent of the common stock of Woods Network was sold to an
unrelated third party. The proceeds from these two sales totaled $6.5
million. In January of 2006, the Massachusetts service location of Select
Energy Contracting – Connecticut (SECI-CT) was sold for approximately
$2 million. See Note 4, “Assets Held for Sale and Discontinued
Operations,” to the consolidated financial statements for further
information regarding the status of the sale of the energy services
businesses. For information regarding NU’s business segments,
see Note 17, “Segment Information,” to the consolidated financial
statements.
B. Presentation
The consolidated financial statements of NU and of its subsidiaries,
as applicable, include the accounts of all their respective subsidiaries.
Intercompany transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain reclassifications of prior period data included in the accompanying
consolidated financial statements have been made to conform with
the current years’ presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS