Eversource 1999 Annual Report Download - page 49

The vesting schedule for the options granted in 1997 is 50
percent after two years, 75 percent after three years and the total
award after four years. The vesting schedule for the options
granted in 1998 is one-third upon grant, two-thirds after one
year and the total award after two years. The options that
were granted in 1999 vest ratably over three years from the
date of grant.
Also under the Incentive Plan, the NU system awarded 91,120
and 49,973 of restricted shares in 1999 and 1998, respectively.
These shares have the same vesting schedule as the options granted
under the Incentive Plan. During 1997, certain key officers
were awarded restricted stock totaling 25,700 shares which vest
ratably over three years from the date of grant. The NU system
has also made several small grants of restricted stock and other
incentive-based stock compensation. During 1999, 1998 and
1997, $2.2 million, $0.8 million and $0.3 million, respectively,
was expensed for stock-based compensation.
Had compensation cost been determined for the ESPP and
the incentive plan stock options under the fair value method
as opposed to the intrinsic value method followed by the NU
system, net income/(loss) and net income/(loss) per share
would have been as follows:
(Millions of Dollars,
except per share amounts) 1999 1998 1997
Net income/(loss) $29.6 $(149.1) $(130.0)
Basic income/(loss)
per share $0.23 $ (1.14) $ (1.01)
Diluted income/(loss)
per share $0.22 $ (1.14) $ (1.01)
The fair value of each stock option grant has been estimated
on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
1999 1998 1997
Risk-free interest rate 5.69% 5.82% 6.41%
Expected life 10 years 10 years 10 years
Expected volatility 36.21% 35.05% 31.89%
Expected dividend yield 1.89% 5.46% 7.42%
The weighted average grant date fair values of options granted
during 1999, 1998 and 1997 were $6.79, $3.98 and $1.68, respec-
tively. As of December 31, 1999, the weighted average remaining
contractual life for those options outstanding is 8.47 years.
6. SALE OF CUSTOMER RECEIVABLES
As of December 31, 1999 and 1998, CL&P had sold accounts
receivable of $170 million and $105 million, respectively, to a
third-party purchaser with limited recourse through the CL&P
Receivables Corporation (CRC), a wholly owned subsidiary of
CL&P. In addition, at December 31, 1999 and 1998, $22.5
million and $11.6 million, respectively, of assets was designated
as collateral under the agreement with CRC.
On June 30, 1999, WMECO terminated its $40 million accounts
receivable program with its respective sponsor. At December
31, 1998, WMECO had sold accounts receivable of $20 million
to a third-party purchaser.
Concentrations of credit risk to the purchaser under the com-
pany’s agreement with respect to the receivables are limited
due to CL&P’s diverse customer base within its service territory.
7. COMMITMENTS AND CONTINGENCIES
A. RESTRUCTURING
Connecticut: During 1999, restructuring orders were issued by
the DPUC which required CL&P to discontinue the application
of SFAS No. 71 to the generation portion of its business and
allowed for the recovery of the majority of its stranded costs.
Stranded costs including regulatory assets will be collected through
a transition charge through 2026. The restructuring orders
also allowed for securitization of CL&P’s nonnuclear regulatory
assets and the costs to buyout or buydown the various pur-
chased-power contracts. Securitization is the process of monetizing
stranded costs through the sale of nonrecourse debt securities
by a special purpose entity, collateralized by CL&P’s interests
in its stranded cost recoveries.
On December 15, 1999, the DPUC issued a supplemental
decision approving the components of CL&P’s rates for standard
offer service commencing on January 1, 2000. The DPUC also
approved an interim nuclear capital recovery mechanism for the
period from January 1, 2000, until the nuclear units are sold
at auction. In approving the rates, the DPUC denied recovery of
most of the capital additions made to Millstone 2 and 3 sub-
sequent to June 30, 1997, which the company has or will expend
to maintain those plants in a safe and efficient condition or to
maintain their auction value. If implemented as approved, the
company would not recover a significant portion of the capital
additions which have been or are expected to be incurred sub-
sequent to July 1, 1997, until the plants are sold in 2001. On
December 29, 1999, CL&P filed with the DPUC a petition for
reconsideration of this portion of the order. The DPUC has agreed
to reopen the docket to consider CL&P’s petition. Management
believes the restructuring legislation provides for the recovery
of these prudently incurred expenditures. If CL&P is unsuccessful
in favorably resolving this contingency, an impairment loss of
$50 million would be recorded.
Massachusetts: In 1999, restructuring orders required WMECO
to discontinue the application of SFAS No. 71 for the generation
portion of its business. In these restructuring orders, WMECO
was allowed to recover the majority of its stranded costs through
a transition charge over the 12-year transition period beginning
March 1, 1998. The decision instructed WMECO to work with
the Massachusetts attorney general regarding the recovery of
nuclear capital additions made after July 1, 1991. The decision
also concluded that the company’s deferred fuel balance should
be included as part of the company’s outstanding generating
unit performance proceedings and not as part of the transition
charge. Management believes that these costs are recoverable
and that there will not be an impact on the results of operations.
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