Eversource 2003 Annual Report Download - page 54

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1. Summary of Significant Accounting Policies
A. About Northeast Utilities
Consolidated: Northeast Utilities (NU or the company) is the parent
company of companies comprising the Utility Group and NU Enterprises.
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act) and is subject to the provisions of the 1935 Act. Arrangements
among the Utility Group, NU Enterprises and other NU companies, outside
agencies and other utilities covering interconnections, interchange of
electric power and sales of utility property are subject to regulation by the
Federal Energy Regulatory Commission (FERC) and/or the SEC. The Utility
Group is subject to further regulation for rates, accounting and other
matters by the FERC and/or applicable state regulatory commissions.
Several wholly owned subsidiaries of NU provide support services for
NU’s companies. Northeast Utilities Service Company provides centralized
accounting, administrative, engineering, financial, information technology,
legal, operational, planning, purchasing, and other services to NU’s
companies. Three other subsidiaries construct, acquire or lease some of
the property and facilities used by NU’s companies.
Utility Group: The Utility Group furnishes franchised retail electric service
in Connecticut, New Hampshire and Massachusetts through three
companies: The Connecticut Light and Power Company (CL&P), Public
Service Company of New Hampshire (PSNH) and Western Massachusetts
Electric Company (WMECO). Another company, North Atlantic Energy
Corporation (NAEC), previously sold all of its entitlement to the capacity
and output of the Seabrook nuclear unit (Seabrook) to PSNH under the
terms of two life-of-unit, full cost recovery contracts (Seabrook Power
Contracts). Seabrook was sold on November 1, 2002. Another Utility
Group subsidiary is Yankee Gas Services Company (Yankee Gas), which is
Connecticut’s largest natural gas distribution system. The Utility Group
includes two reportable segments: the regulated electric utility segment
and the regulated gas utility segment.
Effective January 1, 2004, PSNH completed the purchase of the electric
system and retail franchise of Connecticut Valley Electric Company
(CVEC), a subsidiary of Central Vermont Public Service Corporation
(CVPS), for $30.1 million. CVEC’s 11,000 customers in western New
Hampshire have been added to PSNH’s customer base of more than
460,000 customers. The purchase price included the book value of
CVEC’s plant assets of approximately $9 million and an additional $21
million to terminate an above-market wholesale power purchase
agreement CVEC had with CVPS. The $21 million payment will be
recovered from PSNH’s customers.
NU Enterprises: These companies include Select Energy, Inc. and
subsidiary (Select Energy), a company engaged in wholesale and retail
marketing activities; Northeast Generation Company (NGC) and Holyoke
Water Power Company (HWP), companies that maintain 1,293
megawatts (MW) and 147 MW, respectively, of generation capacity that
is used to support Select Energy’s merchant energy business line; Select
Energy Services, Inc. and subsidiaries (SESI), a company that performs
energy management services for large commercial customers, institutional
facilities, and the United States government and engages in energy-relat-
ed construction services; Northeast Generation Services Company and
subsidiaries (NGS), a company that operates and maintains NGC’s and
HWP’s generation assets and provides third-party electrical services; and
Woods Network Services, Inc. (Woods Network), a network design, prod-
ucts and service company. NU Enterprises is one reportable segment that
includes two business lines: the merchant energy business line and the
energy services business line.
B. Presentation
The consolidated financial statements of NU and of its subsidiaries, as
applicable, include the accounts of all their respective subsidiaries.
Intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingencies at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior years’ data have been made to conform
with the current year’s presentation. Reclassifications were made to cost
of removal, regulatory asset and liability amounts and special deposits on
the accompanying consolidated balance sheets and operating revenues
and fuel, purchased and net interchange power on the accompanying
consolidated statements of income. Reclassifications have also been
made to the accompanying consolidated statements of cash flows and
consolidated statements of income taxes.
C. New Accounting Standards
Derivative Accounting: Effective January 1, 2001, NU adopted Statement
of Financial Accounting Standards (SFAS) No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended resulting in
a negative cumulative effect of accounting change of $22.4 million. In
April 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 149, “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities,” which amends SFAS No. 133. This new statement
incorporates interpretations that were included in previous Derivative
Implementation Group (DIG) guidance, clarifies certain conditions, and
amends other existing pronouncements. It is effective for contracts
entered into or modified after June 30, 2003. Management has determined
that the adoption of SFAS No. 149 did not change NU’s accounting for
wholesale and retail marketing contracts, or the ability of NU Enterprises
to elect the normal purchases and sales exception. The adoption of SFAS
No. 149 resulted in fair value accounting for certain of Utility Group
contracts that are subject to unplanned netting and do not meet the
definition of capacity contracts. These non-trading derivative contracts are
recorded at fair value at December 31, 2003, as derivative assets and
liabilities with offsetting amounts recorded as regulatory liabilities and
assets because the contracts are part of providing regulated electric or
gas service.
Notes To Consolidated Financial Statements