Eversource 2008 Annual Report Download - page 79

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(1) There is no specified maximum exposure included in the related sale agreements.
(2) The fair value for amounts recorded for these indemnifications was $0.2 million at
December 31, 2008.
(3) The fair value for amounts recorded for these indemnifications was $0.1 million at
December 31, 2008.
(4) Surety bond expiration dates reflect bond termination dates (which may be renewed or extended)
for specified term bonds and/or bill-to dates for bonds with no fixed term.
(5) Included in the maximum exposure is $19.2 million related to a performance guarantee of NGS’s
obligations for which there is no specified maximum exposure in the agreement. The maximum
exposure is calculated as of December 31, 2008 based on limits of NGS’s liability contained in the
underlying service contract and assumes that NGS will perform under that contract through its
expiration in 2020. The remaining $1.2 million of maximum exposure relates to insurance bonds
with no expiration date that are billed annually on their anniversary date.
(6) Maximum exposure is as of December 31, 2008; however, exposures vary with underlying
commodity prices and for certain contracts are essentially unlimited.
(7) NU does not currently anticipate that these remaining guarantees on behalf of Select Energy will
result in significant guarantees of the performance of Hess Corporation.
Many of the underlying contracts that NU guarantees, as well as certain surety bonds,
contain credit ratings triggers that would require NU to post collateral in the event that
NU’s credit ratings are downgraded below investment grade.
G. NRG Energy, Inc. Exposures
Certain subsidiaries of NU, including CL&P and Yankee Gas, entered into transactions
with NRG and certain of its subsidiaries. On May 14, 2003, NRG and certain subsidiaries
of NRG filed voluntary bankruptcy petitions, and on December 5, 2003, NRG emerged
from bankruptcy. NU’s NRG-related exposures as a result of these transactions, among
other things now resolved, relate to the recovery of approximately $30.2 million of
CL&P’s station service billings from NRG, and the recovery of, among other claimed
damages, approximately $17.5 million of capital costs and expenses incurred by Yankee
Gas related to an NRG subsidiary’s generating plant construction project that has
ceased.
On February 15, 2008, CL&P and NRG, as well as Yankee Gas and NRG, entered
into settlement agreements with respect to the two matters mentioned above. The
settlements were contingent upon the satisfaction of several conditions related to
NRG’s RNS service through the ISO-NE, which were materially satisfied in May 2008.
The settlement did not have an adverse eect on NU’s consolidated net income,
financial position or cash flows in 2008.
H. Consolidated Edison, Inc. Merger Litigation
On March13, 2008, NU entered into a settlement agreement with Consolidated Edison,
Inc. (Con Edison), which settled all claims under the civil lawsuit between NU and Con
Edison relating to their proposed but unconsummated merger. Under the terms of the
settlement agreement, NU paid Con Edison $49.5 million on March 26, 2008, which is
included in other operating expenses in the accompanying consolidated statement of
income for the year ended December 31, 2008. This amount is not recoverable from
ratepayers.
I. Other Litigation and Legal Proceedings
NU and its subsidiaries are involved in other legal, tax and regulatory proceedings
regarding matters arising in the ordinary course of business, which involve
management’s assessment to determine the probability of whether a loss will occur and,
if probable, its best estimate of probable loss as defined by SFAS No. 5. The company
records and discloses losses when these losses are probable and reasonably estimable
in accordance with SFAS No. 5, discloses matters when losses are probable but not
estimable, and expenses legal costs related to the defense of loss contingencies as
incurred.
8. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each of
the following financial instruments:
Cash and Cash Equivalents and Special Deposits: The carrying amounts approximate
fair value due to the short-term nature of these cash items.
Preferred Stock, Long-Term Debt and Rate Reduction Bonds: The fair value of NU’s
fixed-rate securities is based upon pricing models that incorporate quoted market
prices for those issues or similar issues adjusted for market conditions. Adjustable rate
securities are assumed to have a fair value equal to their carrying value. The carrying
amounts of NU’s financial instruments and the estimated fair values are as follows:
At December 31,
2008 2007
Carrying Fair Carrying Fair
(Millions of Dollars) Amount Value Amount Value
Preferred stock not subject
to mandatory redemption $ 116.2 $ 86.3 $ 116.2 $ 88.2
Long-term debt -
First mortgage bonds 2,312.0 2,399.4 1,806.3 1,792.4
Other long-term debt 1,829.5 1,690.6 1,832.3 1,867.4
Rate reduction bonds 686.5 689.4 917.4 975.2
Other long-term debt includes $298.6 million and $294.3 million of fees and interest
due for spent nuclear fuel disposal costs at December31, 2008 and 2007, respectively.
Derivative Instruments: NU and its subsidiaries hold various derivative instruments that
are carried at fair value. For further information, see Note 3, “Derivative Instruments,” to
the consolidated financial statements.
Other Financial Instruments: NU holds investments in a supplemental benefit trust
for the benefit of the SERP and non-SERP obligation and investments in the spent
nuclear fuel trust for the benefit of WMECO’s spent nuclear fuel obligation. These
investments are carried at fair value in the accompanying consolidated balance
sheets. For further information regarding these investments, see Note 1U, “Summary of
Significant Accounting Policies-Marketable Securities,” Note 1F, “Summary of Significant
Accounting Policies-Fair Value Measurements,” and Note 9, “Marketable Securities,” to
the consolidated financial statements.
NU parent holds a long-term government receivable related to SESI, a former
subsidiary that has been sold. The carrying value of the receivable was $8.8 million
at both December 31, 2008 and 2007 and is included in other deferred debits and
other assets-other on the accompanying consolidated balance sheets. The fair value
of this receivable was $11.5 million and $10.8 million at December 31, 2008 and 2007,
respectively, and was determined based on discounted cash flows.
The carrying value of other financial instruments included in current assets and current
liabilities, including investments in securitizable assets, approximates their fair value due
to the short-term nature of these instruments.