Eversource 2001 Annual Report Download - page 17

Management’s Discussion and Analysis
15
Financial Condition
Overview
Northeast Utilities and subsidiaries (NU or the company) report-
ed 2001 earnings of $243.5 million, or $1.79 per share on a fully
diluted basis, compared with a loss of $28.6 million, or $0.20 per
share on a fully diluted basis in 2000 and earnings of $34.2 mil-
lion, or $0.26 per share on a fully diluted basis in 1999. In 2001
and 2000, NU’s results were affected significantly by nonrecur-
ring items.
In 2001, NU recorded an after-tax gain of $115.6 million, or
$0.85 per share, in connection with the sale of the Millstone
nuclear units to a subsidiary of Dominion Resources, Inc.,
Dominion Nuclear Connecticut, Inc. (DNCI). In 2001, NU also
recorded an after-tax nonrecurring loss of $22.4 million, or $0.17
per share, as a result of the adoption of Statement of Financial
Accounting Standards (SFAS) No. 133, “Accounting for Deriva-
tive Instruments and Hedging Activities,” as amended, and an
after-tax mark-to-market loss of $35.4 million, or $0.26 per share,
associated with the repurchase of NU shares in the first half of
2001. In 2000, NU recorded an extraordinary after-tax loss of
$233.9 million, or $1.65 per share, primarily associated with elec-
tric utility industry restructuring in New Hampshire. Excluding
the effect of these nonrecurring items, NU earned $185.7 million,
or $1.37 per share on a fully diluted basis, in 2001, compared
with $205.3 million, or $1.45 per share on a fully diluted basis, in
2000.
The decline in operating results at NU’s regulated companies
was due to a number of factors. Earnings at both The Connecticut
Light and Power Company (CL&P) and Western Massachusetts
Electric Company (WMECO) decreased primarily because the
sale of Millstone three months into 2001 removed a significant
source of earnings as compared with 2000. Earnings before pre-
ferred dividends at CL&P totaled $109.8 million in 2001, com-
pared with $148.1 million in 2000 and a loss of $13.6 million in
1999. Earnings before preferred dividends at WMECO totaled
$15 million in 2001, compared with $35.3 million in 2000 and
$2.9 million in 1999. In addition to the sale of Millstone, CL&P’s
lower earnings also reflect a $21.1 million reduction in distribution
and transmission rates the Connecticut Department of Public
Utility Control (DPUC) imposed, which was effective on June
20, 2001.
Operating results at Public Service Company of New Hamp-
shire (PSNH) and North Atlantic Energy Corporation (NAEC)
declined as a result of the implementation of industry restructur-
ing and an 11 percent reduction in retail rates on May 1, 2001.
Earnings before preferred dividends at PSNH totaled $81.8 mil-
lion in 2001, compared with a loss of $146.7 million in 2000 and
earnings of $84.2 million in 1999. The PSNH results included an
after-tax gain of $15.5 million associated with the Millstone sale
in 2001 and an after-tax $214.2 million extraordinary charge
associated with electric industry restructuring in 2000. Earnings
at NAEC totaled $4.2 million in 2001, compared with $32.5 mil-
lion in 2000 and $29.6 million in 1999. The lower results at
NAEC reflect a reduction in payments made by PSNH to NAEC
due to a buydown of the Seabrook Power Contracts with the pro-
ceeds from the sale of rate reduction bonds. Management expects
combined operating results at PSNH and NAEC to continue to
decline in 2002, reflecting the effects of a full year of electric utili-
ty industry restructuring.
Results at NU’s competitive energy subsidiaries also declined
in 2001. The competitive energy subsidiaries earned $5 million
on revenues of $3 billion in 2001, compared with a contribution
towards NU’s consolidated earnings of $13.6 million on revenues
of $1.9 billion in 2000 and a loss of $37 million on revenues of
$0.6 billion in 1999, excluding nonrecurring items. The decline
was primarily due to higher purchased power costs in the winter
of 2001 and lower than expected summer and fall customer loads
due to mild weather conditions.
Partially offsetting those declines in operating results was a sig-
nificant increase in earnings at Yankee Energy System, Inc. (Yan-
kee), which NU acquired on March 1, 2000. Yankee earned $25.8
million in 2001, compared with a loss of $0.7 million during the
10 months of 2000 it was part of the Northeast Utilities system
(NU system). The improved results were primarily due to the
inclusion of January 2001 and February 2001 results in 2001
earnings and the settlement of property tax litigation with the
City of Meriden, Connecticut.
NU’s earnings per share (EPS) benefited from the repurchase
of approximately 14.3 million NU common shares in 2001. NU’s
outstanding share count totaled 130.1 million shares on Decem-
ber 31, 2001, compared with 143.8 million shares outstanding on
December 31, 2000.
Future Outlook
NU estimates that its EPS will range between $1.40 per share and
$1.65 per share in 2002, excluding significant nonrecurring
items. NU expects that no retail rate cases will be filed in 2002.
The company therefore expects the financial performance of its
regulated businesses to be relatively stable and predictable in
2002, absent significant adverse events, such as a catastrophic
storm.
Also affecting the 2002 earnings range is the income associated
with NU’s qualified pension plan. In 2001, NU’s operating results
included pretax pension income of approximately $101 million
associated with this plan, excluding the effects of the Voluntary
Separation Program. NU currently expects pretax pension income
in 2002 to be reduced to approximately $73 million. Pension
income is annually adjusted during the second quarter based
upon updated actuarial evaluations, and the 2002 estimate may
be modified at that time.
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