Eversource 2005 Annual Report Download - page 22

20
Negotiations are continuing with parties interested in acquiring NU
Enterprises’ remaining services businesses, which had an aggregate
book value of approximately $45 million at December 31, 2005 and
debt owed to third-party lenders of approximately $90 million. In the
fourth quarter of 2005, NU Enterprises sold SECI-NH and Woods Network
to separate third parties for a total of approximately $6.5 million. In
January of 2006, the Massachusetts service location of SECI-CT was
sold for approximately $2 million.
NU’s senior unsecured debt is rated Baa2 and BBB- with a stable outlook
by Moody’s Investors Service (Moody’s) and Standard & Poor’s (S&P),
respectively, and is rated BBB with a stable outlook by Fitch Ratings. At
December 31, 2005, Select Energy at NU’s current credit ratings levels
could have been requested to provide $12.7 million of collateral under
certain contracts which counterparties have not required to date. If NU
were to be downgraded to a sub-investment grade level by either
Moody’s or S&P, a number of Select Energy’s contracts would require
the posting of additional collateral in the form of cash or LOCs. Were
NU’s senior unsecured ratings to be reduced to sub-investment grade
by either Moody’s or S&P, Select Energy could, under its present
contracts, be asked to provide approximately $406.6 million of collateral
or LOCs to various unaffiliated counterparties and approximately
$95.7 million to several independent system operators and unaffiliated
local distribution companies (LDCs) at December 31, 2005. If such a
downgrade were to occur, management believes NU would currently
be able to provide this collateral. The company’s decision to exit its
competitive generation business resulted in S&P downgrading NGC
debt by three notches to B+, well below investment grade. Moody’s
and Fitch Ratings have both placed NGC under review for downgrade,
but management does not believe that such a downgrade, in and of
itself, would have a negative impact on the ratings of NU or any
other subsidiary.
NU paid common dividends of $87.6 million in 2005, compared with
$80.2 million in 2004 and $73.1 million in 2003. The increase in common
dividends reflects increases in quarterly dividends of $0.0125 per share
in the thirdquarters of 2003, 2004, and 2005. Management expects to
continue its current policy of dividend increases, subject to the approval
of the NU Boardof Trustees and the company’s future earnings and
cash requirements. On February 14, 2006, the NU Board of Trustees
approved a quarterly dividend of $0.175 per share, payable March 31,
2006, to shareholders of recordas of March 1, 2006. In general, the
Utility Group companies pay approximately 60 percent of their cash
earnings to NU in the form of common dividends. In 2005, CL&P, PSNH,
WMECO, and Yankee Gas paid $53.8 million, $42.4 million, $7.7 million,
and $30.8 million, respectively, in common dividends to NU.
Capital expenditures described herein are cash capital expenditures
and do not include cost of removal, allowance for funds used during
construction (AFUDC), and the capitalized portion of pension expense
or income. NU’s capital expenditures totaled $775.4 million in 2005,
compared with $671.5 million in 2004 and $558.1 million in 2003. NU’s
2005 capital expenditures included $444.4 million by CL&P,$158.8 million
by PSNH, $44.7 million by WMECO, $74.6 million by Yankee Gas, and
$52.9 million by other NU subsidiaries, including $23.2 million by NU
Enterprises. The increase in NU’scapital expenditures was primarily
the result of higher transmission capital expenditures, particularly at
CL&P and was also the result of higher capital expenditures at Yankee
Gas, primarily due to construction of its liquefied natural gas storage and
production facility. Utility Group capital expenditures are expected to
increase further approaching $900 million in 2006, including approximately
$600 million, $150 million, $50 million, and $100 million for CL&P,
PSNH, WMECO, and Yankee Gas, respectively. On a consolidated
basis, NU estimates capital expenditures of approximately $900 million
in 2007, $950 million in 2008, $800 million in 2009 and $800 million
in 2010.
NU expects to fund approximately half of its expected capital expenditures
over the next several years through internally generated cash flows. As
aresult, the company expects its Utility Group companies, particularly
CL&P, to issue debt regularly. In 2005, CL&P issued $200 million of
first mortgage bonds, PSNH and Yankee Gas each issued $50 million
of first mortgage bonds and WMECO issued $50 million of senior notes.
Management does not currently expect to issue additional common
equity before 2008. The actual timing of a common equity issuance
will depend on a number of factors, including actual levels of capital
expenditures, net proceeds from the exit from the NU Enterprises
businesses and proposals now before the FERC to provide financial
incentives for the construction of additional electric transmission facilities
in the United States. Some of the incentives under consideration by
the FERC, such as accelerated depreciation and the inclusion of CWIP
in rate base, could increase NU’s internally generated cash flows.
Utility Group: The Utility Group companies entered into an amended
revolving credit agreement that maintained their $400 million credit
line and extended the maturity date of their agreement by one year to
November 6, 2010. There were no borrowings outstanding under that
agreement at December 31, 2005.
In addition to its revolving credit line, CL&P has an arrangement with
afinancial institution under which CL&P can sell up to $100 million
of accounts receivable and unbilled revenues. At December 31, 2005,
CL&P had sold $80 million to that financial institution. For more
information regarding the sale of receivables, see Note 1O, “Summary
of Significant Accounting Policies – Sale of Receivables” to the
consolidated financial statements.
On April 7, 2005, CL&P sold $100 million of 10-year first mortgage
bonds carrying a coupon rate of 5.0 percent and $100 million of 30-year
first mortgage bonds carrying a coupon rate of 5.625 percent.
Proceeds wereused to repay short-term borrowings.
On July 21, 2005, Yankee Gas sold $50 million of 30-year first mortgage
bonds. The interest rate was 5.35 percent. Proceeds were used to
repay short-term borrowings used to finance capital expenditures.
On August 11, 2005, WMECO sold $50 million of 10-year senior notes
with an interest rate of 5.24 percent. On October 5, 2005, PSNH sold
$50 million of 30-year first mortgage bonds with an interest rate of
5.6 percent. Proceeds from both issuances were used to repay
short-termborrowings used to finance capital expenditures.
NU Enterprises: Currently,NU Enterprises’ liquidity is impacted by both
the amount of collateral it receives from other counterparties and the
amount of collateral it is required to deposit with counterparties. From
December 31, 2004 to December 31, 2005, NU Enterprises’ liquidity
was negatively impacted by $76.5 million from counterparty collateral
deposits being repaid and higher counterparty collateral deposits being
made. In 2005, NU Enterprises also made approximately $186 million
of payments to exit municipal and certain other long-term wholesale
power contracts in New England.