Eversource 2006 Annual Report Download - page 23

NU 2006 ANNUAL REPORT 21
affiliates results, excluding the $0.48 per share benefit associated with
CL&P’s PLR. That growth rate includes compounded annual growth of
approximately 23 percent in its regulated electric transmission rate
base and 7 percent in its regulated distribution and generation rate
base. This assumes appropriate regulatory approvals on its electric
transmission and distribution and natural gas distribution investments.
Liquidity
Consolidated: NU’s liquidity improved significantly in 2006, primarily as
aresult of the $1 billion of proceeds from the sale of NU Enterprises’
competitive generation business, net of the assumption of $320 million
of debt by ECP. A portion of these proceeds was used to repay short-term
borrowings under NU’s and the Utility Group’s revolving credit facilities
which were incurred during 2006. At December 31, 2006, there were no
borrowings on NU’s or the Utility Group’s revolving credit facilities or
sales of accounts receivable from CL&P’s $100 million accounts
receivable sales facility. At December 31, 2006, NU had $481.9 million
of cash and cash equivalents on hand compared with $45.8 million at
December 31, 2005.
The exit from the NU Enterprises’ businesses also allowed the company
toeliminatemuch of its highestinterest rate debt. In addition to receiving
approximately $1 billion in cash from the sale of the competitive
generation business, this saleeliminated $320 million of 8.81 percent
NGC secured debt, which was assumed by ECP.The sale of SESI also
eliminated approximately $85 million of debt, which was held for sale
at December 31, 2005 and the final scheduled payment of $21 million
on NU’s8.58 percent 1991 notes on December 1, 2006 also reduced
additional relatively high-cost debt. As a result, the consolidated
weighted average interest rate on fixed rate long-term debt for NU
was 5.73 percent at December 31, 2006, compared with 5.96 percent
at December 31, 2005.
NU’s cash position is expected to change significantly in 2007. In the
firstquarter of 2007, the company will pay approximately $350 million
in federal and state taxes due to the tax gain on the sale of the
competitive generation business, offset by tax losses incurred at NU
Enterprises. Additionally, NU is forecasting capital expenditures of
approximately $1.2 billion and common and preferred dividends of
morethan $100 million in 2007, compared with forecasted net cash
flows from operations of between $500 million and $600 million. As
aresult, the company expects that it will need to borrow on its credit
facilities in 2007 and that its cash position will be significantly lower
by the end of 2007 than it was at the end of 2006. All four of the Utility
Group businesses are expected to issue long-term debt in 2007,
primarily to fund their capital programs. CL&P is expected to issue
approximately $500 million of new debt, while PSNH, WMECO and
Yankee Gas each is expected to issue up to $75 million of long-term
debt in 2007.
Cash flows from operations decreased by $34.1 million to $407.1 million
in 2006 from $441.2 million in 2005. Several items impacting operating
cash flows in 2006 are as follows:
• Cash payments related to Select Energy’s wholesale, retail and
generation derivative contracts settled during 2006 amounted to
approximately $100 million. In 2005, the wholesale contracts were
marked-to-market with a non-cash charge of approximately $440
million, but cash payments of $186.5 million were made to terminate
anumber of wholesale contracts along with cash payments to serve
contracts of approximately $40 million. With the settlement of a
significant portion of these contracts in 2006 and 2005, cash payments
in 2007 to serve remaining wholesale contracts are expected to be
much lower than during 2006 and are expected to be approximately
$40 million. Cash flows for and from selling the retail and generation
businesses, including their derivative contracts, are included in
investing cash flows.
• Payments totaling $90.7 million were made to CYAPC, MYAPC and
YAEC for decommissioning and closure costs. These payments are
expected to decline in future years and are expected to total $44
million in 2007.
• Regulatory refunds paid in the amount of $96.6 million related
primarily to amounts refunded to CL&P’s ratepayers. No such
significant CL&P refunds are expected for 2007 at this time.
• $80 million of outstanding sales under CL&P’s sale of receivables
facility were repaid in 2006 and included as an operating cash
outflow. In addition, regulated accounts receivable and accounts
payable fluctuated due to an increase in receivables due to higher
rates, offset by an increase in accounts payable due to higher prices.
This had an approximately$70 million positive impact on operating
cash flows.
• NU Enterprises accounts receivable and accounts payable both
decreased due primarily to a decrease in the volume of wholesale
and retail billing and payables activity. This had an approximately
$45 million positive impact on operating cash flows.
• A federal income tax payment of approximately $55 million related
toNU’s2005 tax return which was made in the firstquarter of 2006.
Tax payments will increase in the first quarter of 2007 due to a
payment of approximately $350 million in net federal and state
taxes due primarily to the gain on the saleof competitive generation
business.
In 2007, excluding the approximately $350 million tax payment related
to the 2006 sale of the competitive generation business, the company
expects cash flows from operations to be between $250 million and
$300 million higher than they were in 2006.
Cash flows from operations decreased by $19.4 million from $460.6
million in 2004 to$441.2 million in 2005. The decrease in operating cash
flows is primarily due to the 2005 payments made by NU Enterprises of
$186.5 million related to the exit from long-term wholesale marketing
contracts and an accounts receivable increase due to the retail
distribution rate increases that took effect in 2005. These decreases
were partially offset by increases in working capital items, including an
accounts payable increase related to timing of payments to standard
offer suppliers and a change in year over year accrued taxes.
At December 31, 2006, NU maintained a parent company credit facility
of $500 million which expires on November 6, 2010. In December of
2006, NU reduced the maximum borrowing limit of this facility to $500
million from $700 million as a result of its current cash and cash
equivalents balance and lower projected liquidity requirements of NU
Enterprises’ wholesale marketing contracts. In addition, the letter of
credit (LOC) sub-limit of $550 million was also reduced to $500 million.
At December 31, 2006, NU had no borrowings on that credit facility but