Eversource 2003 Annual Report Download - page 23

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PSNH earned $45.6 million in 2003, compared with $62.9 million in
2002. The decline in earnings is due to a lower level of regulatory assets
earning a return, the positive resolution of certain contingencies related
to a regulatory proceeding decided in 2002, and higher pension costs.
Also, as a result of the sale of Seabrook, earnings at NAEC were essentially
eliminated in 2003, compared with earnings of $26.3 million for 2002.
NAEC’s 2002 earnings included $13.9 million related to the elimination
of reserves associated with its ownership share of Seabrook assets.
WMECO earnings were $16.2 million in 2003 compared to $37.7 million
in 2002. The decline in earnings related primarily to the recognition of
$13 million of ITC in the second quarter of 2002 and to the positive
financial impact of an approval of a regulatory settlement in the fourth
quarter of 2002.
Yankee Gas earned $7.3 million in 2003, compared with $17.6 million in
2002. Yankee Gas earnings were reduced by $6.2 million in 2003 as a
result of both the aforementioned downward adjustments in estimated
unbilled revenues and certain gas cost adjustments.
NU Enterprises: NU Enterprises, Inc. is the parent company of Select
Energy, Northeast Generation Company (NGC), Select Energy Services,
Inc. (SESI), Northeast Generation Services Company (NGS), and their
respective subsidiaries, and Woods Network Services, Inc. (Woods
Network), all of which are collectively referred to as “NU Enterprises.”
The generation operations of Holyoke Water Power Company (HWP) are
also included in the results of NU Enterprises. The companies included in
the NU Enterprises segment are grouped into two business lines: the
merchant energy business line and the energy services business line.
The financial performance of NU Enterprises improved in 2003, losing
$3.5 million, or $0.03 per share, compared with losses of $53.2 million,
or $0.41 per share in 2002 and earnings of $6.1 million, or $0.05 per
share in 2001, prior to the negative cumulative effect of an accounting
change associated with the adoption of SFAS No. 133. The 2003 loss of
$3.5 million includes an after-tax loss of approximately $36 million, or
$0.28 per share, related to Select Energy’s share of the cost of settling
the contract dispute between affiliate CL&P and its suppliers over the
responsibility for costs related to the March 2003 implementation of
Standard Market Design (SMD) in New England. The settlement was filed
with the Federal Energy Regulatory Commission (FERC) on March 3,
2004 and is expected to be approved by the FERC in the first half of
2004. Excluding the settlement loss, NU Enterprises earned $32.2 million
or $0.25 per share.
NU Enterprises’ net income improved due to increased margins on
wholesale and retail contracts, improved performance at NGC, which
owns nearly 1,300 megawatts (MW) of primarily hydroelectric and
pumped storage generating capacity in Massachusetts and Connecticut,
and the absence of natural gas trading losses in 2003. Natural gas trading
positions in the first half of 2002 resulted in $17.6 million of trading
losses. Over the past year, Select Energy has significantly reduced its
trading activities, which are now limited primarily to price discovery and
transaction and risk management for the merchant energy business line.
Future Outlook
Consolidated: NU estimates that it will earn between $1.20 per share
and $1.40 per share in 2004, including approximately $0.10 per share of
parent company interest and other expenses.
In 2004, NU is projecting to record pre-tax pension expense of $2.9 million.
Pension expense is annually adjusted during the second quarter based
on updated actuarial valuations, and the 2004 estimate may change.
Utility Group: The NU consolidated earnings estimate of $1.20 per share
to $1.40 per share includes Utility Group earnings of between $1.08 per
share and $1.20 per share. The range reflects uncertainties over the
outcome of a pending PSNH rate case before the New Hampshire Public
Utilities Commission (NHPUC) and the outcome of the NU transmission
rate case before the FERC. Management expects both cases to be decided
in the second half of 2004. The earnings range also reflects a continued
reduction in pension income.
NU Enterprises: NU projects that the financial performance of NU
Enterprises will continue to improve in 2004. The NU consolidated
earnings range of $1.20 per share to $1.40 per share for 2004 reflects
projected earnings of between $0.22 per share and $0.30 per share at
NU Enterprises.
Liquidity
Consolidated: After four years of reducing its indebtedness, NU’s total
debt, excluding rate reduction bonds, rose to $2.7 billion at the end of
2003, compared with $2.4 billion at the end of 2002. The higher debt
levels reflect the issuance of new debt by NU parent, WMECO and SESI
during 2003, as well as a $49 million increase in borrowings on NU’s
revolving credit lines. NU parent sold $150 million of notes at a coupon
rate of 3.3 percent during 2003. These notes mature in 2008. The
proceeds from this issuance were primarily used to refinance Select
Energy’s short-term debt.
At December 31, 2003, NU had $105 million in notes payable to banks,
compared with $56 million of notes payable to banks at December 31,
2002. In addition, NU had $83.7 million of cash, including cash and cash
equivalents and unrestricted cash from counterparties at December 31,
2003, compared with $67.2 million at December 31, 2002.
NU’s net cash flows provided by operating activities totaled $573.6 million
in 2003 as compared to $589.7 million in 2002 and $302.4 million in
2001. Cash flows provided by operating activities in 2003 decreased due
to decreases in working capital items, primarily accounts payable and
accrued taxes. Accrued taxes decreased as the taxes related to the 2002
sale of Seabrook were paid in March of 2003. Accounts payable
decreased as a result of the timing of payments on amounts outstanding
at NU Enterprises. The decreases in these working capital items were
offset by an increase in regulatory overrecoveries in 2003 as compared
to 2002, primarily associated with CL&P’s Competitive Transition
Assessment (CTA), Generation Service Charge (GSC) and System Benefits
Charge (SBC), as well as PSNH’s Stranded Cost Recovery Charge (SCRC).
For a description of the costs recovered through these mechanisms, see
Note 1H — “Summary of Significant Accounting Policies — Utility Group
Regulatory Accounting,” to the consolidated financial statements.
Cash flows provided by operating activities in 2002 increased due to
increases in working capital items, primarily accrued taxes, offset by a
reduction in net income, primarily due to the gain associated with the
sale of Millstone in 2001. Accrued taxes increased due to the taxable gain
on the sale of Seabrook. Those taxes were not paid until March of 2003.
The increase in cash flows provided by operating activities in 2002 related
primarily to more collections of receivables and unbilled revenues in 2002
compared to 2001 associated with the sales growth of NU Enterprises.