Eversource 2006 Annual Report Download - page 72

70 NU 2006 ANNUAL REPORT
Select Energy’s obligation to NGC and Mt. Tom ended at the time of
sale. See Note 8H, “Commitments and Contingencies – Guarantees
and Indemnifications,” for information related to an HWP coal
purchase contract with a supplier and related back-to-back agreement
with Energy Capital Partners (ECP). At December 31, 2006, NU does
not expect that after disposal it will have significant ongoing
involvement or continuing cash flows with the entities presented in
discontinued operations.
The retail marketing business is not presented as discontinued
operations because separate financial information is not available
for this business for periods prior to the first quarter of 2006.
4. Short-Term Debt
Limits: The amount of short-term borrowings that may be incurred
by NU and its operating companies is subject to periodic approval by
either the FERC or by their respective state regulators. On October 28,
2005 the SEC amended its June 30, 2004 order, granting authorization
to allow NU, CL&P, WMECO, and Yankee Gas to incur total short-term
borrowings up to a maximum of $700 million, $450 million, $200 million,
and $150 million, respectively, through June 30, 2007. The SEC also
granted authorization for borrowing through the NU Money Pool (Pool)
until June 30, 2007. Although PUHCA was repealed on February 8, 2006,
under FERC’stransition rules, all of the existing ordersunder PUHCA
relevant to FERC authority will continue to be in effect until December
31, 2007, except for those related to NU and Yankee Gas, which have
no short-term borrowing limitations subsequent to February 8, 2006.
CL&P and WMECO aresubject toFERC jurisdiction as toissuing
short-term debt subsequent to February 8, 2006 and must obtain
newshort-term debt authority from the FERC on or beforethe PUHCA
order expires on December 31, 2007.
PSNH is authorized by the NHPUC toincur short-term borrowings
up to a maximum of $100 million. As a result of this NHPUC
authorization, PSNH is not required toobtain FERC approval for
its short-term debt borrowings.
The charter of CL&P contains preferred stock provisions restricting the
amount of unsecured debt that CL&P may incur. In November of 2003,
CL&P obtained authorization from its preferred stockholders for a ten-
year period expiring in March of 2014 to issue unsecured indebtedness
with a maturity of less than 10 years in excess of the 10 percent of total
capitalization limitation in CL&P’s charter, provided that all unsecured
indebtedness would not exceed 20 percent of total capitalization. On
March 18, 2004, the SEC approved this change in CL&P’s charter. As
of December 31, 2006, CL&P is permitted to incur $359.2 million of
additional unsecured debt under this provision.
Utility Group Credit Agreement: CL&P, PSNH, WMECO, and Yankee Gas
have a 5-year unsecured revolving credit facility for $400 million which
expires on November 6, 2010. CL&P may draw up to $200 million, with
PSNH, WMECO and Yankee Gas able to draw up to $100 million each,
subject to the $400 million maximum borrowing limit. This total
commitment may be increased to $500 million at the request of the
borrower, subject to lender approval. Under this facility, each company
may borrow on a short-term basis or on a long-term basis, subject to
regulatory approval. At December 31, 2006 and 2005, there were no
borrowings outstanding under this facility.
NU Parent Credit Agreement: Effective December 31, 2006, NU
reduced the total commitments under its 5-year unsecured revolving
credit agreement from $700 million to $500 million, which may be
increased at NU’s request to $600 million, subject to lender approval.
The decrease in the total commitment amount also resulted in a
reduction in the letter of credit (LOC) commitment amount from
$550 million to $500 million. Subject to the advances outstanding,
LOCs may be issued for periods up to 364 days in the name of NU
or any of its subsidiaries, including Select Energy. This agreement
expires on November 6, 2010.
Under this facility, NU can borrow either on a short-term or a long-term
basis. At December 31, 2006, there were no borrowings under this
credit facility. At December 31, 2005, there were $32 million in borrowings
outstanding. In addition, there were $67.5 million and $253 million in
LOCs outstanding at December 31, 2006 and 2005, respectively.
Under the Utility Group and NU Parent credit agreements, NU and
its subsidiaries may borrow at variable rates plus an applicable
margin based upon the higher of Standard and Poor’s (S&P) or
Moody’s Investors Service (Moody’s) credit ratings. The weighted
average interest rate on NU’s notes payable to banks outstanding
on December 31, 2005, was 7.25 percent.
Under the Utility Group and NU Parent credit agreements, NU and
its subsidiaries must comply with certain financial and non-financial
covenants, including but not limited to consolidated debt ratios. The
parties tothe credit agreements currently are and expect to remain in
compliance with these covenants.
Amounts outstanding under these credit facilities are classified as
current liabilities as notes payableto banks on the accompanying
consolidated balance sheets as management anticipates that all
borrowings under these credit facilities will be outstanding for no
morethan 364 days at one time.
Other Credit Facility: On July18, 2006, Boulos renewed its $6 million
line of credit. This credit facility replaced a similar credit facility that
expired on June 30, 2006 and unless extended, will expire on June 30,
2007. This credit facility limits Boulos’ ability to pay dividends if borrowings
are outstanding and limits access to the Pool for additional borrowings.
At December 31, 2006 and 2005, there wereno borrowings under this
credit facility.
5. Derivative Instruments
Contracts that arederivatives and do not meet the requirements to be
treated as a cash flowhedge or normal purchases or normal sales are
recorded at fair value with changes in fair value included in earnings.
For those contracts that meet the definition of a derivative and meet
the cash flowhedge requirements, including those related to initial
and ongoing documentation, the changes in the fair value of the
effective portion of those contracts are generally recognized in
accumulated other comprehensiveincome. Cash flow hedges impact
net income when the forecasted transaction being hedged occurs,
when hedge ineffectiveness is measured and recorded, when the
forecasted transaction being hedged is no longer probable of occurring,
or when there is accumulated other comprehensive loss and the hedge
and the forecasted transaction being hedged are in a loss position on a
combined basis. The ineffectiveportion of contracts that meet the cash