Eversource 2005 Annual Report Download - page 58

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million in guarantees related to the energy services businesses is
comprised of $97 million and $14.1 million for SESI’s and NGC’s
obligations, respectively, under certain financing arrangements and
$186.9 million for performance obligations of the energy services
businesses.
Several underlying contracts that NU guarantees, as well as certain
surety bonds, contain credit ratings triggers that would require NU to
post collateral in the event that NU’s credit ratings are downgraded
below investment grade.
Until the repeal of PUHCA on February 8, 2006, NU was authorized by
the SEC to provide up to $750 million of guarantees for its non-utility
subsidiaries through June 30, 2007. The $11 million in outstanding
guarantees on behalf of the Utility Group was subject to a separate
PUHCA limitation of $50 million. The amount of guarantees outstanding
for compliance with this limit for NU Enterprises at December 31,
2005 is $567.5 million. The amount of guarantees outstanding for
compliance with the limit for the Utility Group at December 31, 2005
is $0.2 million. These amounts are calculated using different, more
probabilistic and fair-value based criteria than the maximum level of
exposure required to be disclosed under FIN 45. FIN 45 includes all
exposures even though they are not reasonably likely to result in
exposure to NU.
NU was also authorized by the SEC under PUHCA to issue guarantees
of up to an aggregate $100 million through June 30, 2007 of the debt
or other obligations of two of its other subsidiaries, NUSCO and RRR.
These companies provide certain specialized support and real estate
services and occasionally enter into transactions that require financial
backing from NU. The amount of guarantees outstanding for compliance
with the limit under this category at December 31, 2005 is $0.2 million.
With the repeal of PUHCA, there are no regulatory limits on NU’s
ability to guarantee the obligation of its subsidiaries.
E. Revenues
Utility Group: Utility Group retail revenues are based on rates approved
by the state regulatorycommissions. These regulated rates are applied
to customers’ use of energy to calculate a bill. In general, rates can
only be changed through formal proceedings with the state regulatory
commissions. However,certain Utility Group companies utilize regulatory
commission-approved tracking mechanisms to track the recovery of
certain incurred costs. The tracking mechanisms allow for rates to be
changed periodically,with overcollections refunded to customers or
undercollections collected from customers in future periods.
Utility Group Unbilled Revenues: Unbilled revenues represent an estimate
of electricity or gas delivered to customers that has not yet been
billed. Unbilled revenues areincluded in revenue on the statement of
(loss)/income and are assets on the balance sheet that are reclassified
to accounts receivable in the following month as customers are billed.
Such estimates aresubject to adjustment when actual meter readings
become available, when changes in estimating methodology occur and
under other circumstances.
Through December 31, 2004, the Utility Group estimated unbilled
revenues monthly using the requirements method. The requirements
method utilized the total monthly volume of electricity or gas delivered
to the system and applied a delivery efficiency (DE) factor to reduce
the total monthly volume by an estimate of deliverylosses in order
to calculate total estimated monthly sales to customers. The total
estimated monthly sales amount less the total monthly billed sales
amount resulted in a monthly estimate of unbilled sales. Unbilled
revenues were estimated by first allocating sales to the respective
rate classes, then applying an average rate to the estimate of unbilled
sales. The estimated DE factor had a significant impact on estimated
unbilled revenue amounts.
In the first quarter of 2005, management adopted a new method to
estimate unbilled revenues for CL&P, PSNH, WMECO, and Yankee Gas.
The new method allocates billed sales to the current calendar month
based on the daily load for each billing cycle (DLC method). The billed
sales are subtracted from total calendar month sales to estimate
unbilled sales. The impact of adopting the new method was not material.
This new method replaces the requirements method described above.
Utility Group Transmission Revenues – Wholesale Rates: Wholesale transmission
revenues are based on rates and formulas that are approved by the
FERC. Most of NU’s wholesale transmission revenues are collected
through a combination of the New England Regional Network Service
(RNS) tariff and NU’s Local Network Service (LNS) tariff. The RNS tariff,
which is administered by the New England Independent System
Operator (ISO-NE), recovers the revenue requirements associated with
transmission facilities that are deemed by the FERC to be regional
facilities. This regional rate is reset on June 1 of each year. The LNS
tariff provides for the recovery of NU’s total transmission revenue
requirements, net of revenues received from other sources, including
those revenues received under RNS rates. NU’s LNS tariff is reset
on January 1 and June 1 of each year. Additionally, NU’s LNS tariff
provides for a true-up to actual costs, which ensures that NU recovers
its total transmission revenue requirements, including an allowed return
on equity (ROE). At December 31, 2005, this true-up has resulted in the
recognition of a $2.1 million regulatory liability, including approximately
$1.5 million due to NU’s electric distribution companies.
Utility Group Transmission Revenues – Retail Rates: Asignificant portion of the
NU transmission business revenue comes from ISO-NE charges to the
distribution businesses of CL&P,PSNH and WMECO. The distribution
businesses recover these costs through the retail rates that are charged
to their retail customers. For CL&P, any difference between the revenues
received from retail customers and the retail transmission expenses
charged to the distribution business has historically impacted the
distribution business earnings. In July of 2005, CL&P began a process
of tracking its retail transmission revenues and expenses and adjusting
its retail transmission rates on a regular basis, thereby recovering all of
its retail transmission expenses on a timely basis. This ratemaking
change resulted from the enactment of the legislation passed by the
Connecticut legislature in 2005. WMECO implemented its retail
transmission tracker and rate adjustment mechanism in January of
2002 as partof its 2002 rate change filing. PSNH does not currently
have a retail transmission rate tracking mechanism.
NU Enterprises: NU Enterprises’ revenues are recognized at different
times for its different business lines. Wholesale marketing revenues
were recognized when energy was delivered up to and including the
first quarter of 2005. Subsequent to March 31, 2005, as a result of going
to mark-to-market accounting, these revenues were still recognized
when delivered, however,they were reclassified to fuel, purchased
and net interchange power. Retail marketing revenues are recognized
when energy is delivered. Service revenues are recognized as services
areprovided, often on a percentage of completion basis.