Eversource 2010 Annual Report Download - page 82

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Refer to the Glossary of Terms included in this combined Annual Report on Form 10-K for abbreviations and acronyms used throughout
the combined notes to the consolidated financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Proposed Merger with NSTAR
On October 18, 2010, Northeast Utilities (NU or the Company) and NSTAR announced that each company's Board of Trustees
unanimously approved a Merger Agreement (the "agreement") to create a combined company that will be called Northeast Utilities.
The transaction was structured as a merger of equals in a tax-free exchange. The post-transaction company will provide electric and
natural gas energy delivery service to approximately 3.5 million electric and natural gas customers through six regulated electric and
natural gas utilities in Connecticut, Massachusetts and New Hampshire.
Under the terms of the agreement, NSTAR shareholders would receive 1.312 NU common shares for each NSTAR common share that
they own (the "exchange ratio"). The exchange ratio was structured to result in a no premium merger based on the average closing
share price of each company's common shares for the 20 trading days preceding the announcement. Based on the number of NU
common shares and NSTAR common shares estimated to be outstanding immediately prior to the closing of the merger, upon such
closing NU shareholders will own approximately 56 percent of the post-transaction company and former NSTAR shareholders will own
approximately 44 percent of the post-transaction company. It is anticipated that NU would issue approximately 137 million common
shares to the NSTAR shareholders as a result of the merger. Subject to the conditions in the agreement, NU’s first quarterly dividend
per share declared after the completion of the merger will be increased to an amount that is equivalent, after adjusting for the exchange
ratio, to NSTAR's last quarterly dividend paid prior to the closing.
In accordance with accounting standards for business combinations, NU will account for the transaction as an acquisition of NSTAR by
NU and, upon completion of the transaction, NSTAR will become a direct wholly owned subsidiary of NU.
Completion of the merger is subject to various customary conditions, including, among others, approval by holders of two-thirds of the
outstanding common shares of each company, the continued effectiveness of the registration statement for the NU shares to be issued
to NSTAR shareholders in the merger, and receipt of all required regulatory approvals. Special meetings of shareholders of both
companies to approve the merger are scheduled for March 4, 2011.
B. Presentation
The consolidated financial statements of NU, CL&P, PSNH and WMECO include the accounts of all their respective subsidiaries.
Intercompany transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
In accordance with accounting guidance on the consolidation of VIEs, the Company evaluates its variable interests to determine if it has
a controlling financial interest in a VIE that would require consolidation. The Company's variable interests outside of the consolidated
group consist of contracts with developers of power plants that are required by regulation and provide for regulatory recovery of
contract costs and benefits through customer rates. The Company would consolidate a VIE if it had both the power to direct the
activities of a VIE that most significantly impact the entity's economic performance and the obligation to absorb losses of, or receive
benefits from, the entity that could potentially be significant to the VIE.
For each variable interest in a power plant, NU evaluates the activities of that particular power plant that most significantly impact the
VIE's economic performance to determine whether it has control over those activities. NU's assessment of control includes an analysis
of who operates and maintains the power plant including dispatch rights and who controls the activities of the power plant after the
expiration of its power purchase agreement with NU. NU also evaluates its exposure to potentially significant losses and benefits of the
VIE. As of December 31, 2010, NU held variable interests in VIEs through agreements with certain entities that own single renewable
energy or peaking generation power plants and with other independent power producers. NU does not control the activities that are
economically significant to these VIEs or provide financial or other support to these VIEs. NU does not have financial exposure
because the costs and benefits of all of these arrangements are fully recoverable from, or refundable to, NU's customers. As of
December 31, 2010, NU was not identified as the primary beneficiary of, and therefore does not consolidate, any power plant VIEs.
NUTV and a subsidiary of NSTAR have formed a 75 percent/25 percent owned limited liability company, NPT, to construct, own and
operate the Northern Pass transmission project. NPT and Hydro Renewable Energy entered into a TSA whereby NPT will sell to Hydro
Renewable Energy electric transmission rights over the Northern Pass for a 40-year term at cost of service rates. NPT will be required
to maintain a 50/50 debt to equity ratio. NU determined that NUTV, through its controlling financial interest in NPT, must consolidate
NPT, as NUTV has the power to direct the activities of NPT which most significantly impact its economic performance, including
permitting and siting and operation and maintenance activities over the term of the TSA. As of December 31, 2010, NPT had property,
plant and equipment of $9.7 million and current liabilities of $3.9 million. NPT’s assets are restricted to use by NPT and its creditors do
not have recourse to NU.