Eversource 2005 Annual Report Download - page 70

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Under these credit agreements, NU and its subsidiaries may borrow at
variable rates plus an applicable margin based upon certain debt ratings,
as rated by the higher of Standard and Poor’s (S&P) or Moody’s
Investors Service (Moody’s). The weighted average interest rates on
NU’s notes payable to banks outstanding on December 31, 2005 and
2004, were 7.25 percent and 4.53 percent, respectively.
Under these credit agreements, NU and its subsidiaries must comply
with certain financial and non-financial covenants, including but not
limited to consolidated debt ratios. The parties to the credit agreements
currently are and expect to remain in compliance with these covenants.
Amounts outstanding under these credit facilities are classified as current
liabilities as notes payable to banks on the accompanying consolidated
balance sheets as management anticipates that all borrowings under
these credit facilities will be outstanding for no more than 364 days at
one time.
Other Credit Facility: On June 30, 2005, Boulos, a subsidiary of NGS,
renewed its $6 million line of credit. This credit facility replaced a similar
credit facility that expired on June 30, 2005 and unless extended, will
expire on June 30, 2006. This credit facility limits Boulos’ ability to pay
dividends if borrowings are outstanding and limits access to the Pool
for additional borrowings. At December 31, 2005 and 2004, there were
no borrowings under this credit facility.
6. Derivative Instruments
Contracts that are derivatives and do not meet the definition of a cash
flow hedge and are not elected as normal purchases or normal sales
are recorded at fair value with changes in fair value included in earnings.
For those contracts that meet the definition of a derivative and meet
the cash flow hedge requirements, the changes in the fair value of the
effective portion of those contracts are generally recognized in accu-
mulated other comprehensive income until the underlying transactions
occur. The ineffective portion of contracts that meet the cash flow hedge
requirements is recognized currently in earnings. Derivative contracts
designated as fair value hedges and the item they arehedging areboth
recorded at fair value with changes in fair value of both items recognized
currently in earnings. Derivative contracts that are elected and meet the
requirements of a normal purchase or sale are recognized in revenues
or expenses, as applicable, when the quantity of the contract is delivered.
For the year ended December 31, 2005, $3.2 million, net of tax, was
reclassified to expense from accumulated other comprehensive income
in connection with the consummation of the underlying hedged trans-
actions and recognized in earnings, and a $2.4 million, net of tax, was
reclassified to expense from accumulated other comprehensive income
related to the mark-to-market changes for wholesale contracts that NU
Enterprises is in the process of exiting. During 2005, new cash flow
hedge transactions were entered into that hedge cash flows through
2010. As a result of the consummation of the above transactions and
market value changes since January 1, 2005, and new transactions
entered into during the year, accumulated other comprehensive income
increased by $21.7 million, net of tax. Accumulated other comprehensive
income at December 31, 2005 was a positive $18.2 million, net of tax
(increase to equity), relating to hedged transactions and it is estimated
that a positive $19.6 million included in this net of tax balance will be
reclassified as an increase to earnings in the next twelve months. Cash
flows from hedge contracts are reported in the same category as cash
flows from the underlying hedged transaction.
Anegative pre-tax $3.4 million was recognized in earnings in 2005 for
the ineffective portion of fair value hedges; at the same time a positive
$1.2 million was recorded in earnings for the change in fair value of
the hedged natural gas inventory. The changes in the fair value of both
the fair value hedges and the natural gas inventory being hedged totaling
anegative pre-tax $2.2 million was recorded in fuel, purchased, and
net interchange power on the accompanying consolidated statements
of (loss)/income.
The table below summarizes current and long-term derivative assets
and liabilities at December 31, 2005. At December 31, 2005, derivative
assets and liabilities have been segregated between wholesale, retail,
generation and hedging amounts. As a result of the March 9, 2005 and
November 7, 2005 combined decisions to exit these businesses, the
fair value of these contracts may not represent amounts that will be
realized.
At December 31, 2005
Assets Liabilities
Long- Long- Net
(Millions of Dollars) Current Term Current Term Total
NU Enterprises:
Wholesale $256.6 $103.5 $(369.3) $(220.9) $(230.1)
Retail 35.3 —(18.3) —17.0
Generation 9.2 —(5.1) (15.5) (11.4)
Hedging 19.7 12.9 (8.9) 0.4 24.1
Utility Group – Gas:
Non-trading 0.1 — (0.4) — (0.3)
Utility Group – Electric:
Non-trading 82.6 308.6 (0.5) (31.8) 358.9
NU Parent:
Hedging ———(5.2) (5.2)
Totals $403.5 $425.0 $(402.5) $(273.0) $ 153.0
The business activities of NU Enterprises that result in the recognition
of derivative assets include exposures to credit risk to energy marketing
and trading counterparties. At December 31, 2005, Select Energy had
$437.2 million of derivative assets from wholesale, retail, generation,
and hedging activities that areexposed to counterparty credit risk.
However, a significant portion of these assets is contracted with
investment grade rated counterparties or collateralized with cash.
The table below summarizes current and long-term derivative assets
and liabilities at December 31, 2004. Prior to the decision to exit the
wholesale and retail marketing businesses and the competitive generation
business, these current and long-term derivative assets and liabilities
wereclassified as trading, non-trading and hedging derivative assets
and liabilities. For NU Enterprises, current and long-term derivative assets
totaled $55.6 million and $31.7 million, respectively, while current and
long-termderivative liabilities totaled $125.8 million and $15.9 million,
respectively, at December 31, 2004.