Eversource 2002 Annual Report Download - page 45

management does not expect the adoption of Interpretation No. 46 to
have a material impact on NU’s consolidated financial statements. For
further information regarding NU’s investments in its VIEs, see Note
1D, “Equity Investments and Jointly Owned Electric Utility Plant” to
the consolidated financial statements.
Derivative Instruments: Effective January 1, 2001, NU adopted SFAS
No. 133, as amended. All derivative instruments have been identified
and recorded at fair value effective January 1, 2001. In addition, for
those derivative instruments which are hedging an identified risk,
NU has designated and documented all hedging relationships. For
those contracts that do not meet the hedging requirements, the changes
in fair value of those contracts were recognized currently in earnings.
D. Equity Investments and Jointly Owned Electric Utility Plant
Regional Nuclear Generating Companies: CL&P, PSNH and WMECO
own common stock in four regional nuclear companies (Yankee
Companies). NU’s ownership interests in the Yankee Companies at
December 31, 2002 and 2001, which are accounted for on the equity
method are 49 percent of the Connecticut Yankee Atomic Power
Company (CYAPC), 38.5 percent of the Yankee Atomic Electric
Company (YAEC), 20 percent of the Maine Yankee Atomic Power
Company (MYAPC), and 17 percent of the Vermont Yankee Nuclear
Power Corporation (VYNPC). NU’s total equity investment in the
Yankee Companies and its exposure to loss as a result of these investments
at December 31, 2002 and 2001, is $48.9 million and $52.5 million,
respectively. These investments are VIE’s under FASB Interpretation
No. 46. Excluding VYNPC, which sold its nuclear generating plant,
each Yankee Company owns a single decommissioned nuclear generating
plant. On July 31, 2002,VYNPC consummated the sale of its nuclear
generating plant to a subsidiary of Entergy Corporation for approximately
$180 million.
Seabrook: CL&P and NAEC together previously had a 40.04 percent
joint ownership interest in Seabrook, a 1,148 megawatt nuclear generating
unit. On November 1, 2002, CL&P, NAEC, and certain other joint owners
consummated the sale of their ownership interests in Seabrook to a
subsidiary of FPL Group, Inc. (FPL). At December 31, 2001, plant-in-
service and the accumulated provision for depreciation for NU’s share
of Seabrook totaled $912.5 million and $840.6 million, respectively.
Hydro-Quebec: NU has a 22.66 percent equity ownership interest and
an exposure to loss as a result of this investment totaling $12 million
and $13.6 million at December 31, 2002 and 2001, respectively, in two
companies that transmit electricity imported from the Hydro-Quebec
system in Canada. This investment is a VIE under the FASB Interpretation
No. 46.
Other Investments: NU also maintains certain cost method, equity
method, and other investments in NEON Communications, Inc.
(NEON), a provider of high-bandwidth fiber optic telecommunications
services, Acumentrics Corporation (Acumentrics), a privately owned
producer of advanced power generation and power protection technologies
applicable to homes, telecommunications, commercial businesses,
industrial facilities, and the auto industry, R.M. Services, Inc. (RMS),
a provider of consumer collection services for companies throughout
the United States, and BMC Energy LLC (BMC), an operator of renewable
energy projects. These investments have a combined total carrying
value of $29.1 million and $54 million at December 31, 2002 and 2001,
respectively. During 2002, after-tax impairment write-offs were recorded
to reduce the carrying values of NEON, Acumentrics and RMS to their
net realizable values. Excluding BMC, these investments are VIEs under
FASB Interpretation No. 46, and NU’s exposure to loss as a result of
these investments totaled $24.4 million and $49.3 million at December 31,
2002 and 2001, respectively. In 2001, based on a reduction in its ownership
share in NEON, NU changed from the equity method of accounting to
the cost method of accounting for this investment.
E. Depreciation
The provision for depreciation is calculated using the straight-line
method based on the estimated remaining useful lives of depreciable
utility plant-in-service which range primarily from 3 years to 75 years,
adjusted for salvage value and removal costs, as approved by the
appropriate regulatory agency where applicable. Depreciation rates are
applied to plant-in-service from the time they are placed in service.
When plant is retired from service, the original cost of the plant,
including costs of removal less salvage, is charged to the accumulated
provision for depreciation. The depreciation rates for the several classes
of electric utility plant-in-service are equivalent to a composite rate of
3.2 percent in 2002 and 3.1 percent in 2001 and 2000.
In 2002, the competitive energy subsidiaries concluded a study of the
depreciable lives of certain generation assets. The impact of this study
was to lengthen the useful lives of those generation assets by 32 years
to an average of 70 remaining years. In addition, the useful lives of certain
software was revised and shortened to reflect a remaining life of 1.5
years. As a result of these studies, NU’s operating expenses decreased
by approximately $5.1 million or $0.04 per share on a fully diluted basis
in 2002.
In 2000, HWP discontinued SFAS No. 71, “Accounting for the Effect
of Certain Types of Regulation,” and recorded a charge to accumulated
depreciation for the plant carrying value in excess of fair value for certain
hydroelectric generation assets, which was recorded as an extraordinary
loss. These assets were sold in the fourth quarter of 2001.
F. Revenues
Regulated utility revenues are based on rates approved by the state
regulatory commissions. These regulated rates are applied to
customer’s accounts based on their use of energy. In general, rates
can only be changed through formal proceedings with the state
regulatory commissions.
The determination of the energy sales to individual customers is based
on the reading of their meters, which occurs on a systematic basis
throughout the month. At the end of each month, amounts of energy
delivered to customers since the date of the last meter reading are
estimated and the corresponding unbilled revenue is estimated. This
unbilled revenue is estimated each month based on generation
volumes, estimated customer usage by class, line losses, and applicable
customer rates.
Competitive energy subsidiary revenues are recognized at different
times for the different businesses. Wholesale and retail marketing
revenues are recognized when energy is delivered. Trading revenues
are recognized as the fair value of trading contracts changes. Service
revenues are recognized as services are provided, often on a percentage
of completion basis.
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