Eversource 2008 Annual Report Download - page 27

2009 are significantly less than 2008. In the fourth quarter
of 2008, we announced a new common dividend policy
that targets a payout ratio of approximately 50 percent of
earnings. While this new policy may require additional cash
to fund common dividends, the incremental cash increase
is relatively small and we continue to have a modest payout
ratio relative to peer companies.
We successfully completed our planned long-term debt
financings in 2008, as well as a CL&P bond issuance in early
2009, and we continue to have access to our two revolving
credit facilities described above in a nominal aggregate
amount of $900 million. The lenders under these facilities
are: Bank of America, N.A.; Barclays Bank PLC; BNY Mellon,
N.A.; Citigroup Inc.; HSBC Bank USA, N.A.; JPMorgan
Chase Bank, N.A.; LBCB; Sumitomo Mitsui Banking
Corporation; Toronto Dominion (Texas) LLC; Union Bank
of California, N.A.; Wachovia Bank, N.A.; and Wells Fargo
Bank, N.A. Borrowing capacity under the facility has not
been reduced as a result of the 2008 merger of Wachovia
and Wells Fargo. Lehman Brothers Holdings Inc., the
parent of LBCB, filed for Chapter 11 bankruptcy protection
in September 2008. LBCB’s original aggregate lending
commitment under the facilities was $85 million, $30
million of which was assigned to Sumitomo Mitsui Banking
Corporation in late September, at which time LBCB had
advanced approximately $23.5 million under the facilities.
LBCB subsequently declined to fund the remainder of its
commitment. As a result, when current loans from LBCB
are repaid, we will be limited to an aggregate of $845
million of borrowing capacity under our credit facilities,
which we believe will provide sucient operating flexibility
to maintain adequate liquidity. We have no other exposure
to Lehman Brothers Holdings Inc. or any of its aliates.
As of December 31, 2008, we had borrowings and LOCs
outstanding of approximately $706 million under the credit
facilities, and approximately $793 million as of February 25,
2009, including $19.2 million remaining outstanding from
LBCB. As of February 25, 2009, we also had approximately
$466 million of externally invested cash.
In addition to the revolving credit facilities described above,
we intend to access the capital markets, as appropriate, to
fund our capital projects or otherwise meet funding needs.
The availability and cost of external financings, including
our expected financings in 2009 described below, will be
aected by our financial condition and the then-current
financial market conditions. There can be no assurance that
the cost or availability of future borrowings, if any, will not
be impacted by recent or future capital market disruptions.
PSNH has outstanding $407.3 million of Pollution Control
Revenue Bonds (PCRBs), one series of which, in the
aggregate principal amount of $89.3 million, bears interest
at a rate that is periodically set pursuant to auctions.
Since March 2008, a significant majority of this series of
PCRBs has been held by remarketing agents as the result
of failed auctions due to general market concerns. The
interest rate on these PCRBs has been reset by formula
under the applicable documents every 35 days and has
ranged between 0.2 percent and 4 percent since March
2008. The formula is based on a combination of the
ratings on the PCRBs and an index rate, which provides
for a current interest rate of 0.3 percent. We are not
obligated to purchase these PCRBs, which mature in
2021, from the remarketing agents. In addition, CL&P has
outstanding $423.9 million of PCRBs, one series of which,
in the aggregate principal amount of $62 million, had a
fixed interest rate for a five-year period that expired on
September30, 2008. As a result of poor liquidity in the
tax-exempt market, CL&P chose to acquire this series of
PCRBs on October 1, 2008. These PCRBs, which mature in
2031, have not been retired and are being held temporarily
by CL&P in a flexible interest rate mode with one-day
resets. CL&P expects to remarket the PCRBs when market
conditions improve.
We project that our cash capital expenditures will
be approximately $880 million in 2009, which is
significantly less than 2008. We also project that cash
flows from operations after RRB payments will increase
by approximately $82 million from 2008 to 2009 due
to our southwest Connecticut transmission projects
being reflected fully in rates in 2009, lower refunds of
the previous year’s overcollections, a $20 million retail
rate increase at CL&P, and the absence in 2009 of the
2008 Con Edison settlement. Also, only one series of
our bonds matures prior to 2012, which is Yankee Gas’
$50 million that mature in the second quarter of 2009.
Due to these factors, we expect to require significantly
less debt financing in 2009 than in 2008 (approximately
$400 million, including the $250 million issued by
CL&P in February 2009, compared to $760 million in
2008). We also continue to expect an equity issuance
of approximately $250 million to $300 million in mid-
2009 (or earlier depending on market opportunities).
The proceeds from these financings would be primarily
used to repay short-term borrowings and fund our
capital programs. We will monitor market conditions to
determine the appropriate timing and amount of further
2009 financings.
Our regulated standard oer type contracts do not
require us to post collateral. The regulated companies
continue to solicit bids on wholesale power contracts,
the collateral terms of which we expect to be consistent
with existing contracts. In other regulated contracts
that do contain collateral posting requirements, the
counterparties are generally exposed to us at this time,
and these counterparties have been posting the necessary
collateral when required. As of December 31, 2008, PSNH
had posted $75 million in related collateral in the form of
LOCs with counterparties, as compared to $14 million at
December31, 2007.
An aliate of Constellation Energy Group, Inc.
(Constellation), whose credit ratings were downgraded in
2008 due to liquidity and other concerns, provides energy
under CL&P’s standard oer contracts. As of December
31, 2008, CL&P is not exposed to Constellation in terms
of credit risk, and Constellation is performing on specific
contracts. In the event of Constellation’s default, CL&P
would be required to provide standard oer type services
directly to customers until a substitute supplier could be
arranged. Any additional costs incurred by CL&P in such a
case would be recoverable from customers. If Constellation
were to default under existing contracts within the next
12 months, CL&P could be required to temporarily post
additional collateral of between $15 million and $25
million with ISO-NE based on forward market prices as of
December 31, 2008.
Our collateral requirements for Select Energy’s few
remaining wholesale contracts are modest as we continue
to wind down this business. Select Energy’s largest
remaining contract does not contain any collateral posting
requirements. In addition, we have not experienced any
significant performance diculties with suppliers on Select
Energy’s remaining sourcing contracts. Select Energy
is required to post collateral, primarily with its New York
Mercantile Exchange (NYMEX) broker, based on the market
prices and status of its sourcing contracts. As of December
31, 2008, Select Energy had posted $26.3 million in related
collateral, as compared to $18.9 million at December 31,
2007. Refer to “NU Enterprises Contracts - Counterparty
Credit Risk” in this Management’s Discussion and Analysis
for further discussion.
At December 31, 2007 our pension plan funded ratio
(pension plan assets divided by the accumulated pension
plan benefit obligation) was 123 percent. Our pension plan
has historically been well funded, and we have not been
required to make a contribution to the plan since 1991. Due
to the negative financial market conditions experienced in
2008, the fair value of our pension plan assets dropped by
approximately $900 million to $1.56 billion as of December
31, 2008, and our plan’s funded ratio is now 76 percent.
Based on this 2008 plan year valuation and unless there is a
change in current funding requirements, we will be required
to make an estimated pre-tax contribution to the plan
of approximately $150 million to meet minimum funding
requirements. This contribution would be paid just prior to
the 2009 federal income tax return filing, which will likely
occur in the third quarter of 2010. No cash contributions to
the plan will be required to be made in 2009.
For the 2009 pension plan year, it is likely that we will also
be required to make a pension plan contribution unless
there is a change in current funding requirements or a
very significant recovery in the financial markets. Also,
assuming that the pension plan assets earn the long-term
rate of return of 8.75 percent and discount rates remain
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