Eversource 2005 Annual Report Download - page 79

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Massachusetts:
Transition Cost Reconciliation: On March 31, 2005, WMECO filed its
2004 transition cost reconciliation with the Massachusetts Department
of Telecommunications and Energy (DTE). The DTE has combined the
2003 transition cost reconciliation filing, standard offer service and
default service reconciliation, the transmission cost adjustment filing,
and the 2004 transition cost reconciliation filing into a single proceeding.
The timing of a decision in the combined proceeding is uncertain, but
management does not expect the outcome to have a material adverse
impact on WMECO’s net income or financial position.
B. Environmental Matters
General: NU is subject to environmental laws and regulations intended
to mitigate or remove the effect of past operations and improve or
maintain the quality of the environment. These laws and regulations
require the removal or the remedy of the effect on the environment
of the disposal or release of certain specified hazardous substances
at current and former operating sites. As such, NU has an active
environmental auditing and training program and believes that it is
substantially in compliance with all enacted laws and regulations.
Environmental reserves are accrued using a probabilistic model approach
when assessments indicate that it is probable that a liability has been
incurred and an amount can be reasonably estimated. The probabilistic
model approach estimates the liability based on the most likely action
plan from a variety of available remediation options, including, no action
is required or several different remedies ranging from establishing
institutional controls to full site remediation and monitoring.
These estimates are subjective in nature as they take into consideration
several different remediation options at each specific site. The reliability
and precision of these estimates can be affected by several factors
including new information concerning either the level of contamination
at the site, recently enacted laws and regulations or a change in cost
estimates due to certain economic factors.
The amounts recorded as environmental liabilities on the consolidated
balance sheets represent management’s best estimate of the liability
for environmental costs and takes into consideration site assessment
and remediation costs. Based on currently available information for
estimated site assessment and remediation costs at December 31,
2005 and 2004, NU had $30.7 million and $38.7 million, respectively,
recorded as environmental reserves. A reconciliation of the activity in
these reserves at December 31, 2005 and 2004 is as follows:
For the Years Ended December 31,
(Millions of Dollars) 2005 2004
Balance at beginning of year $38.7 $40.8
Additions and adjustments 4.2 6.4
Payments (12.2) (8.5)
Balance at end of year $30.7 $38.7
Of the 52 sites NU has currently included in the environmental reserve,
26 sites are in the remediation or long-term monitoring phase, 20 sites
have had some level of site assessments completed and the remaining
6sites are in the preliminary stages of site assessment.
For 9 sites that areincluded in the company’s liability for environmental
costs, the information known and nature of the remediation options at
those sites allows for an estimate of the range of losses to be made.
These sites primarily relate to manufactured gas plant (MGP) sites. At
December 31, 2005, $7 million has been accrued as a liability for these
sites, which represents management’s best estimate of the liability for
environmental costs. This amount differs from an estimated range of
loss from $0.3 million to $23.4 million as management utilizes the
probabilistic model approach to make its estimate of the liability for
environmental costs. For the 43 remaining sites for which an estimate
is based on the probabilistic model approach, determining an estimated
range of loss is not possible.
These liabilities are estimated on an undiscounted basis and do not
assume that any amounts are recoverable from insurance companies
or other third parties. The environmental reserve includes sites at
different stages of discovery and remediation and does not include any
unasserted claims.
At December 31, 2005, there are 11 sites for which there are unasserted
claims; however, any related remediation costs are not probable or
estimable at this time. NU’s environmental liability also takes into account
recurring costs of managing hazardous substances and pollutants,
mandated expenditures to remediate previously contaminated sites
and any other infrequent and non-recurring clean up costs.
It is possible that new information or future developments could require
areassessment of the potential exposure to related environmental
matters. As this information becomes available, management will
continue to assess the potential exposure and adjust the reserves
accordingly.
MGP Sites: MGP sites comprise the largest portion of NU’s environmental
liability. MGPs are sites that manufactured gas from coal which produced
certain byproducts that may pose a risk to human health and the
environment. At December 31, 2005 and 2004, $25.3 million and
$33.2 million, respectively, represents amounts for the site assessment
and remediation of MGPs. At December 31, 2005 and 2004, the five
largest MGP sites comprise approximately 64 percent and 58 percent,
respectively, of the total MGP environmental liability.
On January 19, 2005, the DPUC issued a final decision approving the
sale proceeding of a former MGP site that was held for sale at
December 31, 2004. The final decision approved the price of $24 million
for the sale of the land and also approved the deferral of the gain in the
amount of $14 million ($8.4 million net of tax). At December 31, 2004,
NU had $7.9 million related to remediation efforts at the property and
other sale costs recorded in other deferred debits and other assets –
other on the accompanying consolidated balance sheets. During 2005,
the former MGP site was sold to an independent third party.
CERCLA Matters: The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) and its amendments
or state equivalents impose joint and several strict liabilities, regardless
of fault, upon generators of hazardous substances resulting in removal
and remediation costs and environmental damages. Liabilities under
these laws can be material and in some instances may be imposed
without regard to fault or for past acts that may have been lawful at
the time they occurred. NU has four superfund sites under CERCLA for
which it has been notified that it is a potentially responsible party (PRP).
For sites where there are other PRPs and NU’s subsidiaries are not
managing the site assessment and remediation, the liability accrued
represents NU’s estimate of what it will pay to settle its obligations
with respect to the site.