Eversource 1999 Annual Report Download - page 23

OVERVIEW
The financial improvement that began in 1998 continued throughout
1999 at Northeast Utilities (NU or the company), despite rate
reductions in Connecticut and Massachusetts, and larger oper-
ating losses at NU’s unregulated subsidiaries. NU’s results benefited
from the successful restart of the Millstone 2 nuclear unit, the
strong operating performance delivered by the Millstone 3 and
Seabrook Station (Seabrook) nuclear units, retail sales growth,
and continued control over operation and maintenance (O&M)
expenses. The financial improvement allowed NU to resume
the payment of a quarterly dividend for the first time since early
1997. NU shareholders received a common dividend of 10 cents
per share in the fourth quarter of 1999.
During 1999, NU resolved key industry restructuring issues
by establishing initial stranded cost recovery levels and standard
offer service tariffs and agreements in Connecticut and by receiving
final approval of a restructuring plan in Massachusetts. The auction
of substantially all of the fossil and hydroelectric generation
assets owned by The Connecticut Light and Power Company
(CL&P) and Western Massachusetts Electric Company (WMECO)
and the auction of their respective interests in the output of the
Millstone units, moved both companies along in their transition
into purely electric transmission and distribution companies, as
contemplated by restructuring legislation in both Connecticut
and Massachusetts. Also in 1999, the company made significant
progress toward resolving restructuring issues in the state of
New Hampshire by negotiating a global restructuring settlement
that is still subject to regulatory approval.
NU earned $34.2 million, or $0.26 per share in 1999,
compared with a loss of $146.8 million, or $1.12 per share in
1998 and a loss of $130 million, or $1.01 per share in 1997.
Absent significant one-time items, the NU system earned $0.89
per share in 1999, compared with a loss of $0.30 per share in
1998 and a loss of $0.76 per share in 1997. NU’s improved 1999
operating results are attributed to better operating performance
of its nuclear units, a strong economy and continued strong
expense control throughout the year. The 1999 results included
$83 million, or $0.63 per share, in after-tax write-offs. These
write-offs were associated with the settlement of nuclear related
issues ($0.39 per share), industry restructuring ($0.15 per share)
and fees related to the pending merger with Consolidated
Edison, Inc. (Con Edison) ($0.09 per share). During 1998,
NU recorded $133 million, or $0.82 per share, in after-tax
write-offs associated with a rate decision in Connecticut, the
retirement of Millstone 1 and nonrecurring charges at Charter
Oak Energy, an unregulated generation subsidiary of NU. The
“Agreement to Settle PSNH Restructuring” (Settlement Agreement),
involving the Public Service Company of New Hampshire (PSNH)
calls for an after-tax write-off of $225 million. However, that
write-off was not recorded in 1999, as key aspects of the
Settlement Agreement still required regulatory and legislative
approval and it was not possible to determine the ultimate
resolution of this matter at year end.
In 1999, NU’s revenues exceeded $4 billion for the first time,
totaling $4.47 billion, up 18.7 percent from revenues of $3.77
billion in 1998. The growth was primarily due to increased
electric sales by Select Energy, Inc. (Select Energy), NU’s unreg-
ulated power marketing subsidiary, and higher retail sales from
NU’s regulated subsidiaries. Select Energy’s revenues totaled
$554.9 million in 1999, compared with $29.3 million in 1998.
Revenues from the company’s regulated subsidiaries also bene-
fited from a 3.8 percent increase in retail sales, the largest increase
in retail sales in recent history. Approximately 40 percent of
that growth was due to weather related factors that included a
hotter than normal summer. The balance of that increase was
due to economic expansion in NU’s service territories.
Aside from increased revenues, the primary reason for better
operating performance in 1999 was the return to service from
extended outages of Millstone 3 in July 1998 and Millstone 2
in May 1999. The return to service of those units reduced
replacement power costs by $215 million in 1999, compared
to 1998.
Retail rate reductions involving CL&P and WMECO offset
some of the growth in revenues. CL&P’s rates were reduced 5 per-
cent in early 1999. CL&P’s rates were further reduced in January
2000 by 5 percent. The additional 5 percent rate reduction will
offset some of the growth in future revenues. WMECO’s rates
were reduced a total of 15 percent from its August 1997 rates,
11.8 percent adjusted for inflation, between March 1998 and
September 1999.
Sharply higher purchased-power costs at Select Energy also
offset many of the benefits from higher sales. Select Energy
recorded a net loss of $38.8 million in 1999, compared with a
net loss of $13.4 million in 1998. Also in 1999, Select Energy’s
earnings were reduced by $4.1 million related to retail con-
tracts which extend through 2003.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION