Eversource 2005 Annual Report Download - page 83

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F.NRG Energy, Inc. Exposures
Certain subsidiaries of NU, including CL&P and Yankee Gas, have
entered into transactions with NRG Energy, Inc. (NRG) and certain of
its subsidiaries. On May 14, 2003, NRG and certain of its subsidiaries
filed voluntary bankruptcy petitions and on December 5, 2003, NRG
emerged from bankruptcy. NU’s NRG-related exposures as a result of
these transactions relate to 1) the recovery of congestion charges
incurred by NRG prior to the implementation of standard market design
(SMD) on March 1, 2003, which is still pending before the court, 2)
the recovery of CL&P’s station service billings from NRG, which is
currently the subject of an arbitration, and 3) the recovery of Yankee
Gas’ and CL&P’s expenditures that were incurred related to an NRG
subsidiary’s generating plant construction project that has ceased.
While it is unable to determine the ultimate outcome of these issues,
management does not expect their resolution will have a material
adverse effect on NU’s consolidated financial condition or results
of operations.
G. Consolidated Edison, Inc. Merger Litigation
Certain gain and loss contingencies exist with regard to the merger
agreement between NU and Consolidated Edison, Inc. (Con Edison)
and the related litigation.
On March 5, 2001, Con Edison advised NU that it was unwilling to
close its merger with NU on the terms set forth in the parties’ 1999
merger agreement (Merger Agreement). On March 12, 2001, NU filed
suit against Con Edison seeking damages in excess of $1 billion.
In an opinion dated October 12, 2005, a panel of three judges at the
Second Circuit held that the shareholders of NU had no right to sue
Con Edison for its alleged breach of the parties’ Merger Agreement.
NU’s request for a rehearing was denied on January 3, 2006. This
ruling left intact the remaining claims between NU and Con Edison for
breach of contract, which include NU’s claim for recovery of costs and
expenses of approximately $32 million and Con Edison’s claim for
damages of “at least $314 million.” NU is currently considering
whether to seek review by the United States Supreme Court. At this
stage, NU cannot predict the outcome of this matter or its ultimate
effect on NU.
10. Fair Value of Financial Instruments
The following methods and assumptions wereused to estimate the
fair value of each of the following financial instruments:
Cash and Cash Equivalents and Special Deposits: The carrying amounts
approximate fair value due to the short-term nature of these cash items.
SERP Investments: Investments held for the benefit of the SERP are
recorded at fair market value based upon quoted market prices. The
investments having a cost basis of $54 million and $50.1 million held
for benefit of the SERP were recorded at their fair market values at
December 31, 2005 and 2004, of $58.1 million and $55.1 million,
for 2005 and 2004, respectively. For further information regarding
the SERP liabilities and related investments, see Note 7E, “Employee
Benefits – Supplemental Executive Retirement and Other Plans,” and
Note 11, “Marketable Securities,” to the consolidated financial statements.
Prior Spent Nuclear Fuel Trust: During 2004, WMECO established a trust
to fund the amounts due to the DOE for its prior spent nuclear fuel
obligation. These investments having a cost basis of $51.1 million and
$49.5 million for 2005 and 2004, respectively, were recorded at their
fair market value of $50.8 million and $49.3 million at December 31,
2005 and 2004, respectively. For further information regarding these
investments, see Note 11, “Marketable Securities,” to the consolidated
financial statements.
Preferred Stock, Long-Term Debt and Rate Reduction Bonds: The fair value
of NU’s fixed-rate securities is based upon the quoted market price
for those issues or similar issues. Adjustable rate securities are
assumed to have a fair value equal to their carrying value. The carrying
amounts of NU’s financial instruments and the estimated fair values
are as follows:
At December 31, 2005
Carrying Fair
(Millions of Dollars) Amount Value
Preferred stock not subject
to mandatory redemption $116.2 $ 98.5
Long-term debt –
First mortgage bonds 1,314.8 1,425.7
Other long-termdebt 1,744.3 1,791.5
Rate reduction bonds 1,350.5 1,433.6
At December 31, 2004
Carrying Fair
(Millions of Dollars) Amount Value
Preferred stock not subject
to mandatory redemption $116.2 $101.4
Long-termdebt –
First mortgage bonds 1,072.3 1,228.8
Other long-termdebt 1,812.4 1,898.7
Rate reduction bonds 1,546.5 1,674.0
Other long-termdebt includes $268 million and $259.7 million of fees
and interest due for spent nuclear fuel disposal costs at December 31,
2005 and 2004, respectively.
Other Financial Instruments: The carrying value of financial instruments
included in current assets and current liabilities, including investments
in securitizable assets, approximates their fair value.