Eversource 2005 Annual Report Download - page 65

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amounts would be excluded from CL&P’s assets in the event of CL&P’s
bankruptcy. On July 6, 2005, CRC renewed its Receivables Purchase
and Sale Agreement with CL&P and the financial institution through
July 5, 2006. CL&P’s continuing involvement with the receivables that
are sold to CRC and the financial institution is limited to the servicing
of those receivables.
The transfer of receivables to the financial institution under this
arrangement qualifies for sale treatment under SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities – A Replacement of SFAS No. 125.”
NU Enterprises: SESI has a master purchase agreement with an unaffiliated
third party under which SESI may sell certain monies due or which will
become due under delivery orders issued pursuant to United States
federal government energy savings performance contracts (energy
savings contracts). The sale of a portion of the future cash flows from
the energy savings contracts is used to reimburse the costs to construct
the energy savings projects. SESI continues to provide performance
period services under its contract with the government for the remaining
term. The portion of future government payments for performance
period services is not sold to the unaffiliated third party or recorded as
areceivable until such services are rendered.
At December 31, 2005 and 2004, SESI had sold $38.6 million and $30
million, respectively, of accounts receivable related to the installation
of the energy savings projects, with limited recourse, under this master
purchase agreement. Under its delivery orders with the government,
SESI is responsible for ongoing maintenance and other services related
to the energy savings project installation and receives payment for
those services in addition to the amounts sold under the master purchase
agreement. NU has provided a guarantee that SESI will perform its
obligations under the master purchase agreement and subsequent
individual assignment agreements. The sale of the receivables to the
unaffiliated third party qualifies for sales treatment under SFAS No.
140, and therefore these receivables are not included in NU’s
consolidated financial statements.
SESI has entered into assignment agreements to sell an additional $17.9
million of receivables upon completion of the installation of certain
savings projects. Until the projects are completed, the receivables are
recorded under the percentage of completion method and included in
the consolidated financial statements and the advances under the
master purchase agreement are recorded as debt.
P. Asset Retirement Obligations
On January 1, 2003, NU implemented SFAS No. 143, “Accounting for
Asset Retirement Obligations,” requiring legal obligations associated
with the retirement of property, plant and equipment to be recognized
as a liability at fair value when incurred and when a reasonable estimate
of the fair value of the liability can be made. Management concluded
that there were no asset retirement obligations (AROs) to be recorded
upon implementation of SFAS No. 143.
In March of 2005, the FASB issued FIN 47, required to be implemented
by December 31, 2005. FIN 47 requires an entity to recognize a liability
for the fair value of an ARO even if it is conditional on a future event
and the liability’s fair value can be reasonably estimated. FIN 47 provides
that settlement dates and futurecosts should be reasonably estimated
when sufficient information becomes available, and provides guidance
on the definition and timing of sufficient information in determining
expected cash flows and fair values. Management has completed its
identification of conditional AROs and has identified various categories
of AROs, primarily certain assets containing asbestos and hazardous
contamination. A fair value calculation, reflecting expected probabilities
for settlement scenarios, and a data consistency review across operating
companies have been performed.
The earnings impact of this implementation has been reported as a
cumulative effect of accounting change, net of tax benefit, of $1 million
related to NU Enterprises. The Utility Group companies utilized regulatory
accounting in accordance with SFAS No. 71 and the amounts are included
in other regulatory assets at December 31, 2005. The fair value of the
AROs is included in property, plant and equipment and related accretion
is recorded as a regulatory asset, with corresponding credits reflecting
the ARO liabilities in deferred credits and other liabilities – other, on
the accompanying consolidated balance sheet at December 31, 2005.
Depreciation of the ARO asset is also included as a regulatory asset
with an offsetting amount in accumulated depreciation. The following
table presents the fair value of the ARO, the related accumulated
depreciation, the regulatory asset, and the ARO liabilities.
At December 31, 2005
Fair Value Accumulated
of ARO Depreciation Regulatory ARO
(Millions of Dollars) Asset of ARO Asset Asset Liabilities
Asbestos $ 3.9 $(2.1) $21.0 $(22.8)
Hazardous contamination 7.1 (1.7) 17.4 (22.8)
Other AROs 9.6 (3.9) 8.9 (14.6)
Total Utility Group AROs $20.6 $(7.7) $47.3 $(60.2)
Asummaryof the Utility Group AROs by company is as follows:
At December 31, 2005
Accumulated
Depreciation Regulatory ARO
(Millions of Dollars) Fair Value of ARO Asset Asset Liability
CL&P $16.8 $(6.0) $25.1 $(35.9)
PSNH 2.3 (1.2) 17.3 (18.4)
WMECO 1.1 (0.3) 2.4 (3.2)
Yankee Gas 0.4 (0.2) 2.5 (2.7)
Total Utility Group AROs $20.6 $(7.7) $47.3 $(60.2)
The following table presents the ARO liabilities as of the dates indicated,
as if FIN 47 has been applied for all periods affected (millions of dollars):
At At
December 31, January 1,
2005 2004 2004
Utility Group $(60.2) $(53.5) $(52.7)
NU Enterprises (1.7) (1.7) (1.6)
The net negative effect on earnings, as if FIN 47 had been applied for
all periods affected, is as follows for the years ended December 31,
2005, 2004 and 2003 (millions of dollars):
2005 2004 2003
Net (loss)/income as reported
beforecumulative effect
of accounting change
related to FIN 47 $(252.5) $116.6 $116.4
Effect of application of FIN 47 (0.1) (0.1) (0.1)
Pro forma net (loss)/income
beforecumulative effect
of accounting change related
to FIN 47 $(252.6) $116.5 $116.3
EPS:
Basic and diluted – as reported $(1.92) $ 0.91 $ 0.91
Basic and diluted – proforma $(1.92) $0.91 $0.91