Eversource 2006 Annual Report Download - page 22

20 NU 2006 ANNUAL REPORT
prior to January 1, 2006. For information regarding NU’s business
segments, see Note 16, “Segment Information,” to the consolidated
financial statements.
Merchant energy earnings in 2006 were primarily the result of the sale
of the competitive generation business on November 1, 2006, offset
by losses at the retail marketing business prior to the exit from that
business on June 1, 2006. The retail marketing business lost $70.3 million
in 2006, reflecting losses from both electricity sales and natural gas
sales and an after-tax loss of $32.8 million related to the sale of the
retail marketing business.
The losses on retail electricity sales were caused primarily by replacing
the electricity supply at current prices. When the decision to exit the
competitive generation and retail marketing businesses was announced
in 2005, the resources of the competitive generation business that
were previously dedicated to the retail marketing business at a fixed price
were separated from the retail marketing business, exposing the
portfolio of retail sales to current market prices. Market prices have
generally been higher than those that would have been charged by the
competitive generation business (with the competitive generation
business receiving apartially offsetting benefit). The retail marketing
business losses on natural gas were primarily the result of mild weather
that lowered demand and created a surplus of supplywhich was either
sold at a lossor remained in storage with a reduced fair value.
Excluding the gain on the saleof the competitive generation business
in discontinued operations, the combined wholesale marketing and
competitivegeneration businesses recorded earnings of $32.1 million in
2006. Included in these results were higher 2006 competitive generation
business earnings through the November 1, 2006 sale date. Competitive
generation businessearnings werehigher in 2006 as this business
sold its products into a market that was generally higher than sales to
the retail marketing business. However, short-term energy prices
decreased during 2006, which reduced the value received from sale of
generation products. Also included in these earnings is approximately
an $8 million tax benefit from eliminating tax reserves established in
2005 that are no longer needed due to the tax gain on the sale of the
generation assets.
The energy services businesses, parent and other loss in 2006 was due
toafter-tax charges totaling approximately $13 million related to the
following:
• Collectibility of accounts receivable and other assets;
• Contingencies and costs related to projects, including litigation,
warranty and other contingencies;
• Costs related to the valuation and termination of guarantees; and
• Adjustments under various purchase and sale agreements.
Losses on the sale of the services businesses along with the NU
Enterprises $25 million pre-tax contribution to the NU Foundation,
also contributed to the services, parent and other, loss in 2006.
NU Enterprises’2005 loss was primarily due to net after-tax charges
of $322.6 million as a result of restructuring and impairment charges,
mark-to-market charges, primarily on wholesale electric marketing
contracts, and losses on the sale of discontinued operations. In addition
to these mark-to-market, restructuring and impairment charges,
NU Enterprises results in 2005 reflect lower sales for the wholesale
marketing business than in 2004 as a result of the announced exit
from that business in March of 2005.
In 2004, NU Enterprises results included an after-tax loss of $48.3 million
associated with marking-to-market certain natural gas positions. These
positions were balanced by entering into offsetting contracts in the
first quarter of 2005 and had no impact on earnings since then. There
were no restructuring and impairment charges recorded in 2004.
For information regarding the exit from the wholesale marketing, retail
marketing, competitive generation and energy services businesses,
see “NU Enterprises Divestitures,” included in this management’s
discussion and analysis.
NU Parent and Affiliates: NU Parent and affiliates earned $2 million,
or $0.01 per share, in 2006, compared with losses of $18.7 million, or
$0.14 per share, in 2005 and $23.9 million, or $0.18 per share, in 2004.
The improved 2006 results related to an increase in income generated
by higher cash and cash equivalent balances and investments in the NU
money pool (pool) as a result of the proceeds received from the sale of
the competitive generation business and a small amount of earnings
at some of the company’s support and real estate companies. The pool
investments are eliminated in consolidation along with the corresponding
interest expense for the pool borrowers. In 2006, in addition to the
higher investment income, a $2 million after-tax gain associated with
the saleof NU’sinvestment in Globix Corporation (Globix), a telecom-
munications company, also contributed to the increase from 2005.
2006 results were negatively impacted by additional environmental
reserves totaling $1.3 million recorded by HWP associated with its
manufactured gas plant (MGP) coal tar site. The losses in 2005 included
after-tax investment write-downs totaling $4.3 million, while the losses
in 2004 included after-tax investment write-downs totaling $8.8 million.
FutureOutlook
NU projects consolidated earnings of between $1.30 per share and
$1.55 per share in 2007.
Utility Group Distribution and Generation: NU projects that its
regulated electric and natural gas distribution businesses and PSNH’s
generation business will earn between $0.80 per share and $0.90 per
sharein 2007. Those results will be impacted by the outcome of the
PSNH and Yankee Gas rate cases, both of which are expected to be
decided by the middle of 2007.
Utility Group Transmission: NU projects that the transmission business
will earn between $0.50 per share and $0.60 per share in 2007. The
growth in 2007 EPS over 2006 is expected to be the result of earnings
on a higher level of investment.
NU Enterprises: NU projects that NU Enterprises results will be
approximately break even in 2007, excluding any potential mark-to-
market impacts of its remaining wholesale power contracts.
Parent and Affiliates: NU projects that NU Parent and affiliates will
earn between zero and $0.05 per share in 2007.
NU currently projects that it can achieve compounded annual growth
in EPS of between 10 percent and 14 percent over 2006 EPS for the
period 2007 through 2011, with this growth expected to be higher than
that range in early years and below that range in later years. 2006
EPS for this comparison represents 2006 Utility Group and parent and