Eversource 2006 Annual Report Download - page 85

NU 2006 ANNUAL REPORT 83
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
tofull 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 siteassessment and remediation costs at December 31,
2006 and 2005, NU had $26.8 million and $30.7 million, respectively,
recorded as environmental reserves. A reconciliation of the activity in
these reserves at December 31, 2006 and 2005 is as follows:
For the Years Ended December 31,
(Millions of Dollars) 2006 2005
Balance at beginning of year $30.7 $38.7
Additions and adjustments 8.3 4.2
Payments and adjustments (12.2) (12.2)
Balance at end of year $26.8 $30.7
Of the 51 sites NU has currently included in the environmental reserve,
25 sites are in the remediation or long-term monitoring phase, 19 sites
have had some level of site assessments completed and the remaining
7sites are in the preliminary stages of site assessment.
These liabilities areestimated on an undiscounted basis and do not
assume that any amounts are recoverable from insurance companies
or other thirdparties. The environmental reserve includes sites at
different stages of discovery and remediation and does not include
any unasserted claims.
At December 31, 2006, in addition to the 51 sites, there are 11 sites for
which thereareunasserted claims; however, any related remediation
costs arenot probable or estimableat this time. NU’s environmental
liability also takes into account recurring costs of managing hazardous
substances and pollutants, mandated expenditures to remediate
previously contaminated sites and any other infrequent and non-
recurring clean up costs.
Initial remediation activities have been conducted at a coal tar
contaminated river site in Massachusetts that is the responsibility of
HWP.The cost to clean up that contamination may be more
significant than currently estimated, but the level and extent of
contamination is not yet known. Any and all exposure related to this
site are not subject to ratepayer recovery. An increase to the
environmental reserve for this site would be recorded in earnings
in futureperiods and may be material.
Manufactured Gas Plant (MGP) Sites: MGP sites comprise the
largest portion of NU’s environmental liability. MGPs are sites that
manufactured gas from coal which produced certain byproducts that
may pose a risk to human health and the environment. At December
31, 2006 and 2005, $24.8 million and $25.3 million, respectively,
represent amounts for the site assessment and remediation of MGPs.
At December 31, 2006 and 2005, the five largest MGP sites comprise
approximately 65 percent and 64 percent, respectively, of the total MGP
environmental liability.
Of the 51 sites that are included in the company’s liability for
environmental costs, for 7 of these sites, the information known
and nature of the remediation options at those sites allow for an
estimate of the range of losses to be made. These sites primarily
relate to MGP sites. At December 31, 2006, $4.5 million of the $26.8
million total liability has been accrued as a liability for these sites,
which represents management’s best estimate of the liability for
environmental costs. This amount differs from an estimated range of
loss from zero to $19 million as management utilizes the probabilistic
model approach to make its estimate of the liability for environmental
costs. For the 44 remaining sites for which an estimate is based on the
probabilistic model approach, determining an estimated range of loss
is not possible at this time.
On January 19, 2005, the DPUC issued a final decision approving the
saleof a former MGP site. The final decision approved the price of $24
million for the sale of the land and also approved the deferral of the
gain in the amount of $14 million ($8.4 million after-tax). During 2005,
the former MGP site was sold to an independent third party.
CERCLA Matters: The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) and its amendments
or stateequivalents impose joint and several strict liabilities,
regardless of fault, upon generators of hazardous substances
resulting in removal and remediation costs and environmental
damages. Liabilities under these laws can be material and in some
instances may be imposed without regard to fault or for past acts that
may have been lawful at the time they occurred. Of the 51 sites, four
are superfund sites under CERCLA for which it has been notified that
it is a potentially responsible party (PRP). For sites where there are
other PRPsand NU’ssubsidiaries arenot managing the siteassessment
and remediation, the liability accrued represents NU’s estimate of
what it will pay tosettleits obligations with respect to the site.
It is possiblethat new information or future developments could
require a reassessment of the potential exposure to related
environmental matters. As this information becomes available,
management will continue to assess the potential exposure and
adjustthe reserves accordingly.
RateRecovery: PSNH and Yankee Gas have raterecovery mechanisms
for environmental costs. CL&P recovers a certain level of environmental
costs currently in rates but does not have an environmental cost
recovery tracking mechanism. Accordingly, changes in CL&P’s
environmental reserves impact CL&P’s earnings. WMECO does not
have a separate regulatory mechanism to recover environmental costs
from its customers, and changes in WMECO’s environmental reserves
also impact WMECO’s earnings. HWP does not have the ability to
recover environmental costs in rates, and changes in HWP’s
environmental reserves impact HWP’s earnings.