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RESULTS OF OPERATIONS
The components of significant income statement variances for the past two years are
provided in the table below (millions of dollars).
Income Statement Variances 2008 over/(under) 2007 2007 over/(under) 2006
Amount Percent Amount Percent
Operating Revenues $(22 ) - % $(1,055 ) (15 )%
Operating Expenses:
Fuel, purchased and
net interchange power (354 ) (11 ) (1,280 ) (28 )
Other operation 60 6 (160 ) (14 )
Maintenance 43 20 18 9
Depreciation 13 5 25 10
Amortization of regulatory assets, net 146 (a ) 24 (a )
Amortization of rate reduction bonds 4 2 13 7
Taxes other than income taxes 15 6 1 1
Total operating expenses (73) (1) (1,359 ) (20 )
Operating income 51 10 304 (a )
Interest expense, net 29 12 2 1
Other income, net (11 ) (18 ) (3 ) (4 )
Income from continuing operations before
income tax expense 11 3 299 (a )
Income tax expense/(benefit) (4 ) (3 ) 186 (a )
Preferred dividends of subsidiary - - - -
Income from continuing operations 15 6 113 85
Income/(loss) from discontinued operations (1 ) (100 ) (337 ) (100 )
Net income/(loss) $14 6% $ (224 ) (48 )%
a) Percent greater than 100.
Net income was $14 million higher in 2008 as compared to 2007, primarily due to the
growth in the company’s transmission segment, partially oset by a $29.8 million after-tax
charge associated with the settlement of litigation with Con Edison. Net income was
$224 million lower in 2007 as compared to 2006 primarily due to the 2006 $314 million
after-tax gain on the sale our competitive generation business.
Comparison of 2008 to 2007
Operating Revenues
For the Twelve Months Ended December 31,
(Millions of Dollars) 2008 2007 Variance
Electric distribution $ 4,714 $ 4,927 $ (213 )
Gas distribution 577 514 63
Total distribution 5,291 5,441 (150 )
Transmission 396 283 113
Regulated companies 5,687 5,724 (37 )
Competitive businesses 113 98 15
Total $ 5,800 $ 5,822 $ (22 )
Operating revenues decreased $22 million in 2008 primarily due to lower revenues
from the regulated companies ($37 million), partially oset by higher revenues from
competitive businesses ($15 million). The lower regulated companies revenues were
primarily due to the recovery of a lower level of CL&P distribution related expenses passed
through to customers through regulatory tracking mechanisms. Competitive businesses
revenues increased $15 million despite our continued exit from components of the
competitive businesses due to higher Boulos revenues resulting from increased contractor
billings ($10 million) and higher market prices for the remaining Select Energy wholesale
contracts. Certain Select Energy contracts expired during 2008.
Revenues from the regulated companies decreased $37 million due to lower distribution
segment revenues ($150 million), partially oset by higher transmission segment revenues
($113 million). Distribution segment revenues decreased $150 million primarily due to
lower electric distribution revenues ($213 million), partially oset by higher gas distribution
revenues ($63 million). Transmission segment revenues increased $113 million primarily
due to a higher transmission investment base, the impact of the March 24, 2008 FERC
ROE decision and higher operating expenses that are passed through to customers under
FERC-approved transmission taris.
Electric distribution revenues decreased $213 million primarily due to the portion of
revenues that does not impact earnings ($281 million) as a result of distribution revenue
being included in regulatory tracking mechanisms and consolidation eliminations of
transmission segment intracompany billings to the distribution segment, partially oset
by the component of revenues that flows through to earnings ($68 million). The portion
of the electric distribution segment revenues that flows through to earnings increased
$68 million primarily due to increases in retail rates at each of the regulated companies
($89 million), partially oset by lower retail electric sales ($16 million). Retail electric sales
decreased 3.5 percent in 2008 compared with 2007. Gas distribution revenues increased
$63 million primarily due to increased recovery of higher gas costs, the rate increase
eective July1, 2007 and higher firm gas sales. Firm gas sales increased 2.1 percent in
2008 compared with 2007.
The $281 million electric distribution revenue decrease that does not impact earnings is
due to the components of CL&P, PSNH and WMECO retail revenues that are included in
regulatory commission approved tracking mechanisms that track the recovery of certain
incurred costs ($179 million) and revenues that are eliminated in consolidation ($102
million). The distribution revenue tracking components decreased $179 million primarily
due to revenues associated with the recovery of generation service and related congestion
charges ($233 million) and CL&P delivery-related FMCC ($75 million) and lower PSNH
SCRC ($55 million), partially oset by higher CL&P wholesale revenues primarily due to an
increase in the market price of energy related to sales of IPP generation to ISO-NE ($59
million) and higher CL&P and PSNH retail transmission revenues ($82 million) mainly as a
result of the higher 2008 rates and higher CL&P SBC revenue ($36 million). The tracking
mechanisms allow for rates to be changed periodically with overcollections refunded to
customers or undercollections recovered from customers in future periods.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expenses decreased $354 million in 2008
due to lower costs at the regulated companies ($364 million), partially oset by
higher competitive businesses expenses ($9 million). Fuel expense from the regulated
companies decreased primarily at CL&P due to lower GSC supply costs, a decrease in
deferred fuel costs and lower other purchased power costs. The decrease in GSC supply
costs was primarily due to a reduction in load caused primarily by customer migration to
third party suppliers and lower retail sales ($432 million), partially oset by higher Yankee
Gas expenses ($41 million) primarily due to higher fuel prices in 2008 and higher PSNH
fuel expense ($28 million) primarily due to higher forward energy market prices, partially
oset by a decrease in payments to higher priced IPPs in 2008 as contracts expired.
Competitive businesses’ expenses increased due to higher Select Energy purchased power
expenses related to the remaining wholesale contracts. 42