Eversource 2004 Annual Report Download - page 75

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In the 2001 CTA and SBC reconciliation filing, and subsequently in a
September 10, 2002 petition to reopen related proceedings, CL&P
requested that a deferred intercompany tax liability associated with the
intercompany sale of generation assets be excluded from the calculation
of CTA revenue requirements. On September 10, 2003, the DPUC issued
a final decision denying CL&P’s request, and on October 24, 2003, CL&P
appealed the DPUC’s final decision to the Connecticut Superior Court.
The appeal has been fully briefed and argued. A decision from the court
is not expected to be issued until the second quarter of 2005. If CL&P’s
request is granted through these court proceedings, then there could be
additional amounts due to CL&P from its customers. The 2004 impact of
including the deferred intercompany liability in CTA revenue requirements
has been a reduction of approximately $19.3 million in revenue.
New Hampshire:
SCRC Reconciliation Filings: The SCRC allows PSNH to recover its stranded
costs. On an annual basis, PSNH files with the NHPUC a SCRC
reconciliation filing for the preceding calendar year. This filing includes
the reconciliation of stranded cost revenues billed with stranded costs,
and transition energy service and default energy service (TS/DS) revenues
billed with TS/DS costs. The NHPUC reviews the filing, including a prudence
review of PSNH’s generation operations. The cumulative deferral of
SCRC revenues in excess of costs was $208.6 million at December 31,
2004. This cumulative deferral will decrease the amount of non-securitized
stranded costs that will have to be recovered from PSNH’s customers in
the future from $411.3 million to $202.7 million.
The 2003 SCRC reconciliation filing was filed with the NHPUC on April 30,
2004, and a stipulation and settlement agreement between PSNH, the
Office of Consumer Advocate and NHPUC staff was filed with the NHPUC
on October 4, 2004. Under the terms of the settlement agreement, no
costs related to the recovery of stranded costs or the cost of providing
transition energy service were disallowed and the NHPUC staff agreed to
accept the 2003 SCRC filing without change. On October 29, 2004, the
NHPUC issued an order accepting the settlement agreement as filed.
The 2004 SCRC reconciliation filing is expected to be filed with the NHPUC
by May 2, 2005. Management does not expect the NHPUC’s review of
the 2004 SCRC filing to have a material impact on PSNH’s net income
or financial position.
The SCRC and TS/DS rate mechanisms currently reconcile accrued
expenses with billed revenues on a monthly basis. On May 2, 2005,
PSNH expects to file its annual 2004 SCRC and TS/DS reconciliation
that will include a request to include unbilled revenues as part of the
reconciliation process. This request will allow for the reconciliation of
revenues on an accrual basis with the current accrued expenses recovered
through the SCRC and TS/DS rate mechanisms, consistent with accrual
accounting. At December 31, 2004, the PSNH unbilled revenue balance
related to SCRC and TS/DS was $11.7 million and $16.7 million, respectively.
If approved, this change will allow for the inclusion of accrued unbilled
revenue balances in the recovery of SCRC and TS/DS costs. Management
believes that the unbilled revenue balance related to SCRC and TS/DS is
probable of being recovered from PSNH’s customers.
Massachusetts:
Transition Cost Reconciliation: On March 31, 2004, WMECO filed its 2003
transition cost reconciliation with the Massachusetts Department of
Telecommunications and Energy (DTE). This filing reconciled the recovery
of generation-related stranded costs for calendar year 2003. The DTE
has not initiated its investigation into this filing. WMECO expects to file
its 2004 transition cost reconciliation with the DTE on March 31, 2005.
The DTE has combined the 2003 transition cost reconciliation filing and
the 2004 transition cost reconciliation filing into a single proceeding. The
timing of this decision in the combined proceeding is uncertain, but
management does not expect the outcome to have a material adverse
impact on WMECO’s net income or financial position.
B. Environmental Matters
General: NU is subject to environmental laws and regulations intended
to mitigate or remove the effect of past operations and improve or
maintain the quality of the environment. These laws and regulations
require the removal or the remedy of the effect on the environment of the
disposal or release of certain specified hazardous substances at current
and former operating sites. As such, NU has an active environmental
auditing and training program and believes that it is substantially in
compliance with all enacted laws and regulations.
Environmental reserves are accrued using a probabilistic model approach
when assessments indicate that it is probable that a liability has been
incurred and an amount can be reasonably estimated. The probabilistic
model approach estimates the liability based on the most likely action
plan from a variety of available remediation options, including, no action
is required or several different remedies ranging from establishing
institutional controls to full site remediation and monitoring.
These estimates are subjective in nature as they take into consideration
several different remediation options at each specific site. The reliability
and precision of these estimates can be affected by several factors
including new information concerning either the level of contamination
at the site, recently enacted laws and regulations or a change in cost
estimates due to certain economic factors.
The amounts recorded as environmental liabilities on the consolidated
balance sheets represent management’s best estimate of the liability
for environmental costs and takes into consideration site assessment
and remediation costs. Based on currently available information for
estimated site assessment and remediation costs at December 31, 2004
and 2003, NU had $38.7 million and $40.8 million, respectively, recorded
as environmental reserves. A reconciliation of the total reserve amount
at December 31, 2004 and 2003 is as follows:
For the Years Ended December 31,
(Millions of Dollars) 2004 2003
Balance at beginning of year $40.8 $41.9
Additions and adjustments 6.4 4.1
Payments (8.5) (5.2)
Balance at end of year $38.7 $40.8
NU currently has 53 sites included in the environmental reserve. Of those
53 sites, 25 sites are in the remediation or long-term monitoring phase,
22 sites have had site assessments completed and the remaining six
sites are in the preliminary stages of site assessment.
For nine sites that are included in the company’s liability for environmental
costs, the information known and nature of the remediation options at
those sites allow an estimate of the range of losses to be made. These
sites primarily relate to manufactured gas plant (MGP) sites. At
December 31, 2004, $8.1 million has been accrued as a liability for