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STRENGTH
PERFORMANCE
Northeast Utilities
2012 ANNUAL REPORT
GROWTH
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Table of contents

  • Page 1
    PERFORMANCE STRENGTH Northeast Utilities 2012 ANNUAL REPORT GROWTH

  • Page 2
    ... gas customers. Closing Share Price As of Year End $39.08 $36.07 $31.88 $24.06 $25.79 Public Service of New Hampshire Western Massachusetts Electric NSTAR Electric NSTAR Gas Combined NSTAR Electric & Gas Connecticut Light & Power Yankee Gas Combined CL&P/Yankee Gas 2008 2009 2010 2011 2012...

  • Page 3
    ...Year End) Market Capitalization (As of Year End) Share Price (As of Year End) $ $ $ $ $ $ $ $ Note: Diluted Earnings per Common Share (Non-GAAP) was adjusted to exclude merger-related costs and a 2011 storm fund reserve. See Item 7, "Management's Discussion and Analysis of Financial Condition and...

  • Page 4
    ... dividend was increased 10 times from 2004 through 2012. In February 2013, your Board of Trustees raised the common dividend again, this time to an annualized rate of $1.47 per share. This attractive shareholder return was made possible by our strong management team and the hard-working employees of...

  • Page 5
    ... rate is now $1.47 per share, compared with $1.10 per share in 2011. We expect fiscal discipline and execution of our strategic business plan will enable us to grow earnings per share by 6 to 9 percent annually for several years; our earnings per share in 2012 was $2.28, excluding merger expenses...

  • Page 6
    ... closely with Connecticut state officials to develop a long range plan for expansion, and we're working diligently to mirror those efforts in Massachusetts. Customer demand for low price natural gas is driving heating conversions: in 2012, we had a record 8,871 new natural gas heating customers. We...

  • Page 7
    ...5871 THE CONNECTICUT LIGHT AND POWER COMPANY (a Connecticut corporation) 107 Selden Street Berlin, Connecticut 06037-1616 Telephone: (860) 665-5000 NSTAR ELECTRIC COMPANY (a Massachusetts corporation) 800 Boylston Street Boston, Massachusetts 02199 Telephone: (617) 424-2000 PUBLIC SERVICE COMPANY OF...

  • Page 8
    ... which the following series are outstanding: 4.25% 4.78% Series Series NSTAR Electric Company, Public Service Company of New Hampshire and Western Massachusetts Electric Company each meet the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and each is therefore filing this...

  • Page 9
    ... 30, 2012. Northeast Utilities, directly or indirectly, holds all of the 6,035,205 shares, 100 shares, 301 shares, and 434,653 shares of the outstanding common stock of The Connecticut Light and Power Company, NSTAR Electric Company, Public Service Company of New Hampshire and Western Massachusetts...

  • Page 10
    This Page Left Blank Intentionally.

  • Page 11
    ...Scheduling List Competitive Transition Assessment Construction work in progress Earnings Per Share Employee Retirement Income Security Act of 1974 Default Energy Service Employee Stock Ownership Plan NUSCO NUTV PSNH Regulated companies RRR Select Energy WMECO YAEC Yankee Yankee Companies Yankee Gas...

  • Page 12
    ... TSA UI Employee Share Purchase Plan Fitch Ratings Federally Mandated Congestion Charge Financial Transmission Rights Accounting principles generally accepted in the United States of America Generation Service Charge Greater Springfield Reliability Project Gigawatt-Hours Holyoke Gas and Electric...

  • Page 13
    ...AND SUBSIDIARIES THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARY NSTAR ELECTRIC COMPANY AND SUBSIDIARIES PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY 2012 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Part I Item 1. Business Page...

  • Page 14
    ... LIGHT AND POWER COMPANY AND SUBSIDIARY NSTAR ELECTRIC COMPANY AND SUBSIDIARIES PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 References in this Annual...

  • Page 15
    ... AND SUBSIDIARIES WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY PART I Item 1. Business Please refer to the Glossary of Terms for definitions of defined terms and abbreviations used in this Annual Report on Form 10-K. NU, headquartered in Boston, Massachusetts and Hartford, Connecticut, is...

  • Page 16
    ... of CL&P, PSNH and WMECO's electric distribution customers were without power at the peak of the outages, with 810,000 of those customers in Connecticut, 237,000 in New Hampshire, and 140,000 in western Massachusetts. In terms of customer outages, this was the most severe storm in CL&P's history...

  • Page 17
    ... storm costs through its applicable regulatory recovery process. ELECTRIC DISTRIBUTION - CONNECTICUT THE CONNECTICUT LIGHT AND POWER COMPANY CL&P's distribution business consists primarily of the purchase, delivery and sale of electricity to its residential, commercial and industrial customers...

  • Page 18
    ...C&LM charge, established to implement cost-effective energy conservation programs and market transformation initiatives. Transmission adjustment clause, which reconciles on a semi-annual basis the transmission revenues billed to customers against the transmission costs of acquiring such services, to...

  • Page 19
    ... service territories. As of December 31, 2012, NSTAR Electric furnished retail franchise electric service to approximately 1.1 million customers in Boston and 80 surrounding cities and towns in Massachusetts, including Cape Cod and Martha's Vineyard, covering an area of 1,702 square miles. WMECO...

  • Page 20
    ... including the delivery of power, meter reading, billing, and customer service. NSTAR Electric continues to supply approximately 40 percent of its customer load at basic service rates while the other 60 percent of its customer load has migrated to competitive energy suppliers. WMECO continues to...

  • Page 21
    ... HAMPSHIRE PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE PSNH's distribution business consists primarily of the generation, delivery and sale of electricity to its residential, commercial and industrial customers. As of December 31, 2012, PSNH furnished retail franchise electric service to approximately...

  • Page 22
    ...were able to offer electricity supply at lower prices than PSNH. By the end of 2012, approximately 9.4 percent of all of PSNH's customers (approximately 44 percent of load), mostly large commercial and industrial customers, had switched to competitive energy suppliers. This was an increase from 2011...

  • Page 23
    ... customers switching to firm service rates, and the addition of gas-fired distributed generation in Yankee Gas' service territory. On a weather-normalized basis, the average NU combined consolidated total firm natural gas sales increased 2.7 percent in 2012, as compared to 2011, assuming NSTAR Gas...

  • Page 24
    ...These purchases are made under a program approved by the Massachusetts Department of Public Utilities in 2006. This practice attempts to minimize the impact of fluctuations in prices to NSTAR Gas' firm gas customers. These financial contracts do not procure gas supply. All costs incurred or benefits...

  • Page 25
    .... Retail natural gas service in Connecticut is partially unbundled: residential customers in Yankee Gas' service territory buy gas supply and delivery only from Yankee Gas while commercial and industrial customers may choose their gas suppliers. Yankee Gas offers firm transportation service to its...

  • Page 26
    ... New England customers through charges that recover costs of transmission and other transmission-related services provided by all regional transmission owners, with a portion of those revenues collected from the distribution businesses of CL&P, NSTAR Electric, PSNH and WMECO. These rates provide for...

  • Page 27
    ... major NEEWS project. All siting applications have been filed by CL&P and National Grid. On January 2, 2013, the Connecticut Siting Council issued a final decision and order approving the Connecticut portion of the project. Decisions in Rhode Island and Massachusetts are expected between the end...

  • Page 28
    ... fuel. Each Yankee Company collects decommissioning and closure costs through wholesale FERC-approved rates charged under power purchase agreements with CL&P, NSTAR Electric, PSNH and WMECO and several other New England utilities. These companies in turn recover these costs from their customers...

  • Page 29
    ...in complying with RPS from its customers through rates. Massachusetts' RPS program also requires electricity suppliers to meet renewable energy standards. For 2012, the requirement was 16.6 percent, and will ultimately reach 27.1 percent in 2020. NSTAR Electric and WMECO are permitted to recover any...

  • Page 30
    ...taxes, fuel and energy taxes, or regulations requiring additional capital expenditures at our generating facilities. We expect that any costs of these rules and regulations would be recovered from customers. Connecticut, New Hampshire and Massachusetts are each members of the Regional Greenhouse Gas...

  • Page 31
    ... to satisfy energy supply requirements to CL&P, NSTAR Electric and WMECO will likely be included in the overall wholesale rates charged, which costs are then recoverable from customers. Federal greenhouse gas legislation has stalled under the current administration. Recently, climate change law has...

  • Page 32
    ...workforces of NSTAR with our businesses and workforces; Conditions, terms, obligations or restrictions relating to the Merger imposed on us by regulatory authorities may adversely affect our business and operations; We may be unable to avoid potential liabilities and unforeseen increased expenses or...

  • Page 33
    ... from our customers would have an adverse effect on our financial position, results of operations and cash flows. Limits on our access to and increases in the cost of capital may adversely impact our ability to execute our business plan. We use short-term debt and the long-term capital markets as...

  • Page 34
    .... Increases in electric and gas prices and/or a weak economy, can lead to changes in legislative and regulatory policy promoting energy efficiency, conservation, and self-generation and/or a reduction in our customers' ability to pay their bills, which may adversely impact our business. Energy...

  • Page 35
    ... gas rate relief and/or by requiring surcharges to customer bills to support state programs not related to the utilities or energy policy. Such increases could pressure overall rates to our customers and our routine requests to regulators for rate relief. In addition, CL&P, NSTAR Electric and WMECO...

  • Page 36
    ... or the long-term debt and equity capital markets. Prior to funding NU parent, the Regulated companies have financial obligations that must be satisfied, including among others, their operating expenses, debt service, preferred dividends (in the case of CL&P and NSTAR Electric), and obligations to...

  • Page 37
    ..., 2012, WMECO owned the following electric generating plant: Number of Sites Year Installed Claimed Capability** (kilowatts) Type of Plant Total - Solar Fixed Tilt, Photovoltaic 2 sites 2010-11 4,100 ** Claimed capability represents the direct current nameplate capacity of the plant. CL&P did...

  • Page 38
    ... 1 renewable energy. NSTAR ELECTRIC AND NSTAR GAS. Through their charters, which are unlimited in time, NSTAR Electric and NSTAR Gas have the right to engage in the business of delivering and selling electricity and natural gas within their respective service territories, and have powers incidental...

  • Page 39
    ... the power of eminent domain. The Massachusetts restructuring legislation applicable to NSTAR Electric (described above) is also applicable to WMECO. Yankee Gas. Yankee Gas holds valid franchises to sell gas in the areas in which Yankee Gas supplies gas service, which it acquired either directly or...

  • Page 40
    ... J. May David R. McHale Joseph R. Nolan, Jr.* Leon J. Olivier 43 55 50 57 65 52 49 64 Vice President, Controller and Chief Accounting Officer. Senior Vice President, General Counsel and Secretary. Senior Vice President-Human Resources of NUSCO and NSTAR Electric & Gas. Executive Vice President and...

  • Page 41
    ... as a Trustee of the NSTAR Foundation since August 18, 1987. David R. McHale. Mr. McHale became Executive Vice President and Chief Administrative Officer of NU, CL&P, NSTAR Electric, NSTAR Gas, PSNH, WMECO, Yankee Gas, NUSCO and NSTAR Electric & Gas upon completion of the Merger. Mr. McHale has...

  • Page 42
    ... Equity Compensation Plans For information regarding securities authorized for issuance under equity compensation plans, see Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, included in this Annual Report on Form 10-K. (d) Performance Graph...

  • Page 43
    ...portions due within one year, but excludes RRBs for Long-Term Debt. See the Combined Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for a description of any accounting changes materially affecting the comparability of the information reflected in the tables above. 30

  • Page 44
    NU Selected Consolidated Sales Statistics 2012 Revenues: (Thousands) Residential Commercial Industrial Wholesale Streetlighting and Railroads Miscellaneous and Eliminations Total Electric Natural Gas Total - Regulated Companies Other and Eliminations Total Regulated Companies - Sales: (GWh) ...

  • Page 45
    ...in Management's Discussion and Analysis, herein. Financial Condition and Business Analysis Merger with NSTAR: On April 10, 2012, NU and NSTAR completed our merger. Pursuant to the terms and conditions of the Agreement and Plan of Merger, as amended (the Merger Agreement), NSTAR merged into NSTAR LLC...

  • Page 46
    ...establishes new timing on rate case proceedings, and establishes requirements for all distribution companies to enter into additional long-term renewable energy distribution contracts. On August 6, 2012, Massachusetts Governor Patrick signed into law "An Act relative to emergency service response of...

  • Page 47
    ... in storm restoration costs, NUSCO Pension Plan cash contributions, 2012 customer bill credits and NU Parent merger transaction cost payments. In 2012, we issued $850 million of new long-term debt consisting of $400 million by NSTAR Electric, $300 million by NU Parent, and $150 million by WMECO...

  • Page 48
    ... Electric, NSTAR Gas, and WMECO for customer bill credits related to the Massachusetts settlement agreement; and An $8.9 million charge at NU parent for the establishment of a fund to advance Connecticut energy goals related to the Connecticut settlement agreement. Excluding the impacts of the 2012...

  • Page 49
    ...-tax merger settlement agreement costs, which related to customer bill credits, NSTAR Electric's distribution business earned $150.2 million from April 10, 2012 through December 31, 2012. For further information regarding NSTAR Electric's earnings, see "Results of Operations - NSTAR Electric Company...

  • Page 50
    ... customers switching to firm service rates, and the addition of gas-fired distributed generation in Yankee Gas' service territory. On a weather-normalized basis, the average NU combined consolidated total firm natural gas sales increased 2.7 percent in 2012, as compared to 2011, assuming NSTAR Gas...

  • Page 51
    .... The proceeds, net of issuance costs, were used to repay the NU parent $263 million Series A Senior Notes that matured on April 1, 2012, to repay short-term borrowings and for other general corporate purposes. On March 22, 2012, the FERC approved CL&P's application requesting to increase its total...

  • Page 52
    ... PSNH and WMECO storm restoration costs related to Tropical Storm Irene, the October 2011 snowstorm, and Hurricane Sandy, NUSCO Pension Plan cash contributions of $197.4 million in 2012, compared to $143.6 million in 2011, a total of $28 million of bill credits in 2012 to customers of CL&P and WMECO...

  • Page 53
    ... current credit ratings and outlooks by Moody's, S&P and Fitch for senior unsecured debt of NU parent, NSTAR Electric, and WMECO and senior secured debt of CL&P and PSNH is as follows: Moody's Current Outlook Current S&P Outlook Current Fitch Outlook NU Parent CL&P NSTAR Electric PSNH WMECO Baa2...

  • Page 54
    ... major NEEWS project. All siting applications have been filed by CL&P and National Grid. On January 2, 2013, the Connecticut Siting Council issued a final decision and order approving the Connecticut portion of the project. Decisions in Rhode Island and Massachusetts are expected between the end...

  • Page 55
    ...underground cable replacement, and equipment failures. Load growth includes requests for new business and capacity additions on distribution lines and substation overloads. Clean Air Project: In June 2012, PSNH placed into service the last major elements of the Clean Air Project at Merrimack Station...

  • Page 56
    ... joint complaint with the FERC under Sections 206 and 306 of the Federal Power Act alleging that the base ROE used in calculating formula rates for transmission service under the ISO-NE Open Access Transmission Tariff by New England transmission owners, including CL&P, NSTAR Electric, PSNH and WMECO...

  • Page 57
    ... of CL&P, PSNH and WMECO's electric distribution customers were without power at the peak of the outages, with 810,000 of those customers in Connecticut, 237,000 in New Hampshire, and 140,000 in western Massachusetts. In terms of customer outages, this was the most severe storm in CL&P's history...

  • Page 58
    ...LRS rate increased from 6.06 cents per kWh to 7.679 cents per kWh. These changes were due primarily to the market conditions for the procurement of energy. CL&P is fully recovering from customers the costs of its SS and LRS services. CTA and SBC Reconciliation: On December 12, 2012, PURA approved CL...

  • Page 59
    ...these performance standards. Massachusetts: Basic Service Rates: Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers through Basic Service for those customers who choose not to buy energy from a competitive energy supplier. Basic Service rates...

  • Page 60
    ... purchase energy from PSNH is a net increase of 1.287 cents per kWh in total rates. On December 28, 2012, the NHPUC approved the request. ES Temporary Rates: On November 22, 2011, the NHPUC opened a docket to review the Clean Air Project including the establishment of temporary rates for near-term...

  • Page 61
    ... standards will be provided to customers, and that transmission companies performing vegetation management activities within a rightof-way comply with certain notification provisions. We are currently evaluating this act and its potential impacts on NSTAR Electric's, NSTAR Gas' and WMECO's financial...

  • Page 62
    ... Accounting Policies - Revenues," to the consolidated financial statements. Pension and PBOP: NUSCO and NSTAR Electric sponsor pension plans covering certain of our employees. In addition, NUSCO and NSTAR Electric & Gas sponsor PBOP plans to provide certain health care benefits, primarily medical...

  • Page 63
    ... by 50 basis points: (Millions of Dollars) Assumption Change NU Consolidated Pension Plan Cost PBOP Plan Cost As of December 31, 2012 2011 2012 2011 Lower long-term rate of return Lower discount rate Higher compensation increase NSTAR Plans $ $ $ $ $ $ 15.0 22.0 10.4 4.8 6.8 3.6 $ $ $ 10.3 14...

  • Page 64
    ... as discount rates, peer company financial results, recent market transactions and forecasted cash flows. Income Taxes: Income tax expense is estimated annually for each of the jurisdictions in which we operate. This process involves estimating current and deferred income tax expense or benefit and...

  • Page 65
    ... our estimates of nonperformance risk, including credit risk. For further information on market risk, see Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," included in this Annual Report on Form 10-K. For further information on derivative contracts and marketable securities, see...

  • Page 66
    ... and/or services that are provided on demand, the timing of which cannot be determined. Because payment timing cannot be determined, we include all open purchase order amounts in 2013. These amounts represent NU's estimated minimum pension contributions to its qualified Pension Plan required under...

  • Page 67
    ... Increase/ (a) 2012 2011 (Decrease) Percent (Millions of Dollars) Operating Revenues Operating Expenses: Purchased Power, Fuel and Transmission Operations and Maintenance Depreciation Amortization of Regulatory Assets, Net Amortization of Rate Reduction Bonds Energy Efficiency Programs Taxes Other...

  • Page 68
    ... higher electric distribution business expenses ($31.6 million) mainly as a result of general and administrative expenses primarily related to higher pension costs.  Partially offsetting these increases was the absence in 2012 of the storm fund reserve established in 2011 to provide bill credits...

  • Page 69
    ... Net decreased in 2012, as compared to 2011, due primarily to lower AFUDC related to equity funds at PSNH as the Clean Air Project was placed into service in September 2011, partially offset by net gains on the NU supplemental benefit trust in 2012, compared to net losses in 2011. Income Tax Expense...

  • Page 70
    ..., Increase/ 2010 (Decrease) (Millions of Dollars) 2011 Percent Operating Revenues Operating Expenses: Purchased Power, Fuel and Transmission Operations and Maintenance Depreciation Amortization of Regulatory Assets, Net Amortization of Rate Reduction Bonds Energy Efficiency Programs Taxes Other...

  • Page 71
    ... supply costs and purchased power costs, partially offset by higher CfD and other costs at CL&P Lower energy prices, a slight increase in ES customer migration to third party suppliers and lower retail sales for PSNH's remaining ES customers Lower Basic Service costs at WMECO Lower natural gas costs...

  • Page 72
    ... earnings ($2.1 million); partially offset by higher state income taxes ($9.6 million). Results of Operations for each of CL&P, NSTAR Electric, PSNH and WMECO have been omitted from this report but are set forth in the Annual Report on Form 10-K for 2012 filed with the SEC on a combined basis with...

  • Page 73
    ...a wide variety of customers and suppliers that include IPPs, industrial companies, gas and electric utilities, oil and gas producers, financial institutions, and other energy marketers. Margin accounts exist within this diverse group, and we realize interest receipts and payments related to balances...

  • Page 74
    ... sections of this annual report. NU's internal controls over financial reporting were audited by Deloitte & Touche LLP. Management is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company's internal control framework and processes have been...

  • Page 75
    ... at NSTAR LLC and its subsidiaries. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of...

  • Page 76
    ...Current Assets: Cash and Cash Equivalents Receivables, Net Unbilled Revenues Fuel, Materials and Supplies Regulatory Assets Marketable Securities Prepayments and Other Current Assets Total Current Assets Property, Plant and Equipment, Net...,529 2012 2011 Total Assets $ 28,302,824 $ ...

  • Page 77
    ...-Term Debt - Current Portion Accounts Payable Regulatory Liabilities Derivative Liabilities Other Current Liabilities Total Current Liabilities Rate Reduction Bonds Deferred Credits and Other Liabilities: Accumulated Deferred Income Taxes Regulatory Liabilities Derivative Liabilities Accrued Pension...

  • Page 78
    ..., Except Share Information) Operating Revenues Operating Expenses: Purchased Power, Fuel and Transmission Operations and Maintenance Depreciation Amortization of Regulatory Assets, Net Amortization of Rate Reduction Bonds Energy Efficiency Programs Taxes Other Than Income Taxes Total Operating...

  • Page 79
    ... Issued in Connection with NSTAR Merger Other Equity Impacts of Merger with NSTAR Dividends on Common Shares - $1.32 Per Share Dividends on Preferred Stock Issuance of Common Shares, $5 Par Value Long-Term Incentive Plan Activity Issuance of Treasury Shares to Fund ESOP Other Changes in Shareholders...

  • Page 80
    ... Assets, Net Amortization of Rate Reduction Bonds Derivative Assets and Liabilities Other Changes in Current Assets and Liabilities: Receivables and Unbilled Revenues, Net Fuel, Materials and Supplies Taxes Receivable/Accrued, Net Accounts Payable Other Current Assets and Liabilities, Net Net Cash...

  • Page 81
    ...natural gas customers through six regulated utilities in Connecticut, Massachusetts and New Hampshire. See Note 2, "Merger of NU and NSTAR," for further information regarding the merger. NU, CL&P, NSTAR Electric, PSNH and WMECO are reporting companies under the Securities Exchange Act of 1934. NU is...

  • Page 82
    ...) NU CL&P PSNH WMECO $ 77.2 52.6 19.1 15.9 $ 48.9 39.4 26.4 18.3 $ 131.4 90.3 12.9 21.8 $ 124.0 92.3 12.0 16.3 Effective January 1, 2012, NSTAR Electric changed its estimates with respect to the allowance for doubtful accounts, incurred but not reported claims on medical benefits, general...

  • Page 83
    ... 10.0 NSTAR Electric amounts are not included in NU consolidated as of December 31, 2011. NU, CL&P and WMECO balances as of December 31, 2011 have been reclassified to include the uncollectible hardship reserve in the total provision for uncollectible accounts. F. Fuel, Materials and Supplies and...

  • Page 84
    ... were included in Purchased Power, Fuel and Transmission on the accompanying consolidated statements of income. These costs are recovered from customers through energy supply revenues. G. Restricted Cash and Other Deposits As of December 31, 2012, NU, CL&P and PSNH had $3.3 million, $1.3 million...

  • Page 85
    ... Accounting Many of CL&P's, NSTAR Electric's, PSNH's and WMECO's contracts for the purchase and sale of energy or energy-related products are derivatives, along with NU Enterprises' remaining wholesale marketing contracts and NSTAR Gas' NYMEX futures. The accounting treatment for energy contracts...

  • Page 86
    ... of CL&P's, NSTAR Electric's, PSNH's and WMECO's regional and local revenue requirements as prescribed in the ISO-NE Tariff. The RNS and Schedule 21 - NU and Schedule 21 - NSTAR rates provide for the annual reconciliation and recovery or refund of estimated (or projected) costs to actual costs. The...

  • Page 87
    ...Years Ended December 31, 2011 (Millions of Dollars) 2012 2010 NU CL&P $ 135.0 120.7 $ 137.8 121.6 $ 143.7 128.0 Certain sales taxes are also collected by CL&P, NSTAR Electric, WMECO, Yankee Gas and NSTAR Gas from their respective customers as agents for state and local governments and are...

  • Page 88
    ..., 2012 represented a significant non-cash transaction. Refer to Note 2, "Merger of NU and NSTAR," for further information on the purchase price of NSTAR. Q. Related Parties NUSCO and NSTAR Electric & Gas, NU's service companies, provide centralized accounting, administrative, engineering, financial...

  • Page 89
    ...of NU. NSTAR LLC is a holding company engaged through its subsidiaries in the energy delivery business serving electric and natural gas distribution customers in Massachusetts. The merger was structured as a merger of equals in a tax-free exchange of shares. As part of the merger, NSTAR shareholders...

  • Page 90
    ...pre-tax financial impacts of the Connecticut and Massachusetts settlement agreements that were recognized by NU, CL&P, NSTAR Electric, and WMECO are summarized as follows: (Millions of Dollars) NU CL&P NSTAR Electric WMECO Customer Rate Credits Storm Costs Deferral Reduction Establishment of Energy...

  • Page 91
    ... December 31, 2012 (Millions of Dollars) CL&P NSTAR Electric PSNH WMECO CL&P 2011 NSTAR (1) Electric PSNH WMECO Benefit Costs Regulatory Assets Offsetting Derivative Liabilities Goodwill Storm Restoration Costs Income Taxes, Net Securitized Assets Contractual Obligations Power Contracts Buy Out...

  • Page 92
    ... status of the pension and postretirement plans. Regulatory accounting was also applied to the portions of the NUSCO and NSTAR Electric & Gas costs that support the Regulated companies, as these amounts are also recoverable. CL&P and PSNH do not collect carrying charges on these deferred benefit...

  • Page 93
    ... of CL&P, NSTAR Electric, PSNH or WMECO. Each operating company will seek recovery of these deferred storm restoration costs through its applicable regulatory recovery process. The PSNH storm restoration costs deferral as of December 31, 2012 and 2011 related to costs incurred for a major storm in...

  • Page 94
    ... it was not required to refund to customers. NSTAR Electric and WMECO: Each company recovers certain of its costs on a fully reconciling basis through DPU-approved cost recovery mechanisms. These rate mechanisms recover costs associated with the procurement of energy for basic service, the retail...

  • Page 95
    ...: CL&P, NSTAR Electric, PSNH and WMECO's transmission rates recover total transmission revenue requirements, recovering all regional and local revenue requirements for providing transmission service. These rates provide for annual reconciliations to actual costs and the difference between billed and...

  • Page 96
    ..., including planned major maintenance activities, is charged to Operating Expenses as incurred. The following tables summarize the NU, CL&P, NSTAR Electric, PSNH and WMECO investments in utility property, plant and equipment by asset category: NU (Millions of Dollars) As of December 31, 2012 2011...

  • Page 97
    ...) NU CL&P Average Depreciable Life NSTAR Electric PSNH WMECO Distribution Transmission Generation Other 42.1 45.3 32.7 16.7 41.8 39.8 - 33.9 46.3 - 33.8 42.1 32.8 - 30.2 47.5 25.0 - 5. DERIVATIVE INSTRUMENTS The Regulated companies purchase and procure energy and energy-related products...

  • Page 98
    ... Supply and Price Risk Management As of December 31, 2012 Collateral (1) and Netting Net Amount Recorded as (2) Derivative Asset/(Liability) Current Derivative Assets: Level 2: Other Level 3: CL&P Other Total Current Derivative Assets Long-Term Derivative Assets: Level 3: CL&P Total Long-Term...

  • Page 99
    ... Policies - Derivative Accounting," to the consolidated financial statements. Derivatives Not Designated as Hedges Commodity Supply and Price Risk Management: As required by regulation, CL&P has capacity-related contracts with generation facilities. These contracts and similar UI contracts have an...

  • Page 100
    ... company's credit rating for liabilities. Valuations incorporate estimates of premiums or discounts that would be required by a market participant to arrive at an exit price, using historical market transactions adjusted for the terms of the contract. The following is a summary of NU's, including CL...

  • Page 101
    ... 10, 2012, upon consummation of the merger with NSTAR and consolidation of CYAPC and YAEC, NU's marketable securities also includes legally restricted trusts for the decommissioning of nuclear power plants. The Company elects to record mutual funds purchased by the NU supplemental benefit trust at...

  • Page 102
    ... the WMECO spent nuclear fuel trust, and in the trusts held by CYAPC and YAEC. Factors considered in determining whether a credit loss exists include the duration and severity of the impairment, adverse conditions specifically affecting the issuer, and the payment history, ratings and rating changes...

  • Page 103
    ... ASSET RETIREMENT OBLIGATIONS In accordance with accounting guidance for conditional AROs, NU, including CL&P, NSTAR Electric, PSNH and WMECO, recognizes a liability for the fair value of an ARO on the obligation date if the liability's fair value can be reasonably estimated and is conditional on...

  • Page 104
    ... this authorization. Yankee Gas and NSTAR Gas are not required to obtain approval from any state or federal authority to incur short-term debt. Credit Agreements and Commercial Paper Programs: On July 25, 2012, NU, CL&P, NSTAR LLC, NSTAR Gas, PSNH, WMECO, and Yankee Gas jointly entered into a five...

  • Page 105
    ... purchase accounting fair value adjustment that will be amortized in the next twelve months. NU, with its strong credit ratings, has several options available in the financial markets to repay or refinance these maturities with the issuance of new long-term debt. NU, CL&P, NSTAR Electric, and WMECO...

  • Page 106
    ...-2028 4.375% Fixed Rate Tax Exempt due 2028 (2) 1.25% Fixed Rate Tax Exempt due 2028 (3) 1.55% Fixed Rate Tax Exempt due 2031 Total Pollution Control Notes Total First Mortgage Bonds and Pollution Control Notes Fees and Interest due for Spent Nuclear Fuel Disposal Costs (4) CL&P Commercial Paper and...

  • Page 107
    ...4.875% due 2012 4.875% due 2014 (6) 2.375% due 2022 5.625% due 2017 5.75% due 2036 5.50% due 2040 Total Debentures Bonds: 7.375% Tax Exempt Sewage Facility Revenue Bonds, due 2015 Less Amounts due Within One Year Unamortized Premiums and Discounts, Net NSTAR Electric Long-Term Debt PSNH (Millions of...

  • Page 108
    ... million of tax-exempt PCRBs were issued with an initial fixed rate term period ending on September 2, 2013, and are subject to mandatory tender for purchase on September 3, 2013, at which time CL&P expects to remarket the PCRBs. On April 2, 2012, CL&P remarketed $62 million of tax-exempt PCRBs for...

  • Page 109
    ... relates to the purchase price adjustment required to record the NSTAR long-term debt issuances at fair value on the date of the merger. As of December 31, 2011, amount related to a fixed to floating interest rate swap on the $263 million NU parent note that matured on April 1, 2012. The change...

  • Page 110
    ...most employees, including CL&P, PSNH, and WMECO employees, hired before 2006 (or as negotiated, for bargaining unit employees), referred to as the NUSCO Pension Plan. NSTAR Electric serves as plan sponsor for a defined benefit retirement plan that covers most employees of NSTAR Electric & Gas, hired...

  • Page 111
    ... Pension and SERP Plan benefit obligations, fair values of Pension Plan assets, and funded status: Pension and SERP NU (Millions of Dollars) As of December 31, 2012 2011 Change in Benefit Obligation Benefit Obligation as of Beginning of Year Liabilities Assumed from Merger with NSTAR Service Cost...

  • Page 112
    ... 31, 2012 NSTAR (1) CL&P Electric PSNH (Millions of Dollars) NU WMECO Service Cost Interest Cost Expected Return on Plan Assets Actuarial Loss Prior Service Cost/(Credit) Total Net Periodic Benefit Expense Curtailments and Settlements Related Intercompany Allocations Capitalized Pension Expense...

  • Page 113
    ... the NSTAR Plan is accounted for under the multi-employer basis. Accordingly, the funded status of the NUSCO PBOP Plans is allocated to its subsidiaries, including CL&P, PSNH and WMECO, while the NSTAR PBOP Plan is not reflected on the SEC registrant NSTAR Electric's balance sheet. NU annually funds...

  • Page 114
    ..., 2011 NU CL&P PSNH WMECO 2012 (Millions of Dollars) NU (1) 2010 NU CL&P PSNH WMECO CL&P PSNH WMECO Service Cost $ Interest Cost Expected Return on Plan Assets Actuarial Loss Prior Service Cost/(Credit) Net Transition Obligation Cost(2) Total Net Periodic Benefit Expense $ Related Intercompany...

  • Page 115
    The following actuarial assumptions were used to calculate PBOP expense amounts: PBOP For the Years Ended December 31, 2012 2011 2010 NUSCO PBOP Plans Discount Rate Expected Long-Term Rate of Return NSTAR PBOP Plan Discount Rate Expected Long-Term Rate of Return 4.84 % 8.25 % 4.58 % 7.30 % 5.28 %...

  • Page 116
    ...'s policy is to annually fund the NUSCO and NSTAR Pension Plans in an amount at least equal to an amount that will satisfy federal requirements. NU contributed $197.4 million to the NUSCO Pension Plan in 2012, of which $87.7 million was contributed by PSNH. NSTAR Electric contributed $25 million to...

  • Page 117
    ...the PBOP Plans. For NSTAR Electric, certain pension assets have been reclassified to the current year presentation in order to align the reporting of pension assets subsequent to the closing of the merger. CL&P, PSNH and WMECO participate in the NUSCO Pension Plan and NUSCO PBOP Plans. Each company...

  • Page 118
    ... 122.7 $ $ $ B. Defined Contribution Plans NU maintains two defined contribution plans on behalf of eligible participants. The NUSCO 401(k) Savings Plan covers eligible employees, including CL&P, PSNH, WMECO, and effective October 1, 2012, certain newly-hired NSTAR Electric & Gas employees. 105

  • Page 119
    ... of costs associated with shares issued or sold to NU's service companies' employees and officers that support CL&P, NSTAR Electric, PSNH and WMECO. Upon consummation of the merger with NSTAR, the NSTAR 1997 Share Incentive Plan and the NSTAR 2007 Long-Term Incentive Plan were assumed by NU. Share...

  • Page 120
    ... ESPP, no compensation expense is recorded, as the ESPP qualifies as a noncompensatory plan.   RSUs: NU granted RSUs under the annual Long-Term incentive programs that are subject to three-year graded vesting schedules for employees, and one-year graded vesting schedules for board members. RSUs...

  • Page 121
    ... with the terms of the NU 2010 Incentive Program, with distribution in 2013. The total compensation cost and associated future income tax benefit recognized by NU, CL&P, NSTAR Electric, PSNH and WMECO for share-based compensation awards were as follows: NU (Millions of Dollars) 2012 For the...

  • Page 122
    ... shares purchased in the open market. E. Other Retirement Benefits NU provides benefits for retirement and other benefits for certain current and past company officers of NU, including CL&P, PSNH and WMECO. These benefits are accounted for on an accrual basis and expensed over the service lives...

  • Page 123
    ... of Dollars) Current Income Taxes: Federal $ State Total Current Deferred Income Taxes, Net: Federal State Total Deferred Investment Tax Credits, Net Income Tax Expense $ (1) CL&P (47.8) 3.1 (44.7) 2012 NSTAR Electric (1) For the Years Ended December 31, 2011 NSTAR PSNH (0.9) 3.4 2.5 WMECO $ (24...

  • Page 124
    ... Federal Tax Credits State Income Taxes, Net of Federal Impact Medicare Subsidy Tax Asset Valuation Allowance/Reserve Adjustments Regulatory Decision NonPlant flow through Other, Net Income Tax Expense $ Effective Tax Rate $ $ $ $ $ $ $ $ $ $ $ NU, CL&P, NSTAR Electric, PSNH and WMECO...

  • Page 125
    ...Millions of Dollars) CL&P NSTAR Electric PSNH WMECO CL&P NSTAR Electric (1) 2011 PSNH WMECO Deferred Tax Assets: Derivative Liabilities and Change in Fair Value of Energy Contracts Allowance for Uncollectible Accounts Regulatory Deferrals Employee Benefits Tax Effect - Tax Regulatory Assets Federal...

  • Page 126
    ... factors, including new information concerning either the level of contamination at the site, the extent of NU, CL&P, NSTAR Electric, PSNH and WMECO's responsibility or the extent of remediation required, recently enacted laws and regulations or a change in cost estimates due to certain economic...

  • Page 127
    ... which remediation or long-term monitoring, preliminary site work or site assessment are being performed are as follows: As of December 31, 2012 Number of Sites Reserve (in millions) As of December 31, 2011 Number of Sites Reserve (in millions) NU CL&P (1) NSTAR Electric PSNH WMECO (1) 77 19 16 16...

  • Page 128
    ..., 2012, a liability of $1 million ($0.4 million for CL&P, $0.1 million for NSTAR Electric and $0.4 million for PSNH) accrued on these sites represents management's best estimate of its potential remediation costs with respect to these superfund sites. Environmental Rate Recovery: PSNH, NSTAR Gas and...

  • Page 129
    ... CL&P's SS or LRS, or NSTAR Electric's or WMECO's default service contracts, the amounts of which vary with customers' energy needs. The contractual obligations table also does not include PSNH's short-term power supply management. Renewable Energy: Renewable energy contracts include non-cancellable...

  • Page 130
    ... fuel. The Yankee Companies collect decommissioning and closure costs through wholesale, FERC-approved rates charged under power purchase agreements with several New England utilities, including CL&P, NSTAR Electric, PSNH and WMECO. These companies in turn recover these costs from their customers...

  • Page 131
    ... of customers of CL&P, NSTAR Electric, PSNH and WMECO will be addressed in the same FERC rate proceedings. D. Guarantees and Indemnifications NU parent, or NSTAR LLC, as applicable, provides credit assurances on behalf of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, in the form...

  • Page 132
    ... its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, as of December 31, 2012: Maximum Exposure (in millions) Subsidiary Description Expiration Dates Various Various NUSCO and RRR NU Enterprises (1) (2) Surety Bonds NE Hydro Companies' Long-Term Debt Lease Payments for Vehicles and...

  • Page 133
    ... revenue requirement during 2012, which we believe is probable of approval from the DPU. H. Basic Service Bad Debt Adder (NSTAR Electric) In accordance with a generic DPU order, electric utilities in Massachusetts recover the energy-related portion of bad debt costs in their Basic Service rates...

  • Page 134
    ... generally contain renewal options. Certain lease agreements contain payments impacted by the commercial paper rate plus a credit spread or the consumer price index. Operating lease rental payments charged to expense were as follows: (Millions of Dollars) NU CL&P NSTAR (1) Electric PSNH WMECO 2012...

  • Page 135
    ... of fixed-rate long-term debt securities and RRBs is based upon pricing models that incorporate quoted market prices for those issues or similar issues adjusted for market conditions, credit ratings of the respective companies and treasury benchmark yields. Adjustable rate securities are assumed...

  • Page 136
    ... of PSNH's Retained Earnings is subject to restriction under its FERC hydroelectric license conditions. As of December 31, 2012, NU, CL&P, NSTAR Electric, PSNH, WMECO, Yankee Gas and NSTAR Gas were in compliance with all such provisions of its credit agreements that may restrict the payment of...

  • Page 137
    ...shares of CL&P, NSTAR Electric, PSNH and WMECO common stock authorized and issued as of December 31, 2012 and 2011 and the respective par values: Shares Per Share Par Value Authorized As of December 31, 2012 2011 Issued As of December 31, 2012 2011 NU CL&P NSTAR Electric PSNH WMECO $ $ $ $ $ 5 10...

  • Page 138
    ...to the NSTAR shareholders. See Note 2, "Merger of NU and NSTAR," for further information. The preferred stock of NSTAR Electric is not subject to mandatory redemption and has been presented as a noncontrolling interest in NSTAR Electric in the accompanying consolidated financial statements of NU. In...

  • Page 139
    ...performance and makes decisions about the allocation of company resources. Each of NU's subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, has one reportable segment. Therefore, separate Transmission and Distribution information is not disclosed for CL&P, NSTAR Electric, PSNH or WMECO. NU...

  • Page 140
    ...contract costs and benefits through customer rates. NU, CL&P and NSTAR Electric hold variable interests in variable interest entities (VIEs) through agreements with certain entities that own single renewable energy or peaking generation power plants and with other independent power producers. NU, CL...

  • Page 141
    ... those costs relating to NSTAR Electric. Management expects the costs to meet the criteria for specific cost recovery in Connecticut and Massachusetts and, as a result, does not expect the storm to have a material impact on the results of operations of CL&P or NSTAR Electric. Each operating company...

  • Page 142
    ..., 2011 and 2010. NSTAR Electric's Net Income for the quarter ended December 31, 2012 decreased by $8.2 million, as compared to the quarter ended December 31, 2011, related to a pre-tax charge to establish a reserve of $13.7 million to reflect a billing adjustment, all of which related to prior year...

  • Page 143
    ... review, that the disclosure controls and procedures of NU, CL&P, NSTAR Electric, PSNH and WMECO are effective to ensure that information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized, and reported within the time...

  • Page 144
    ... Chief Financial Officer of NU and the Regulated companies; Director of CL&P. Senior Vice President, General Counsel and Secretary of NU; Senior Vice President and General Counsel of the Regulated companies; Director of CL&P. Senior Vice President-Human Resources of NUSCO, NSTAR Electric & Gas, and...

  • Page 145
    ... project manager, operations manager, business unit supply manager, district manager, and field engineer. David R. McHale. Mr. McHale became Executive Vice President and Chief Administrative Officer of NU, CL&P, NSTAR Electric, NSTAR Gas, PSNH, WMECO, Yankee Gas, NUSCO and NSTAR Electric & Gas upon...

  • Page 146
    ... are applicable to all Trustees, directors, officers, employees, contractors and agents of NU, CL&P, NSTAR Electric, PSNH and WMECO. The Code of Ethics and the Standards of Business Conduct have both been posted on the NU web site and are available at www.nu.com/investors/corporate_gov/default.asp...

  • Page 147
    ...the terms of our Incentive Plan. The weighted-average exercise price in Column (b) does not take into account restricted share units or performance shares, which have no exercise price. Includes 857,280 common shares issuable under our Employee Share Purchase Plan II. All of our current compensation...

  • Page 148
    ... (Parent) Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010 II. Valuation and Qualifying Accounts and Reserves for NU, CL&P, NSTAR Electric, PSNH and WMECO for 2012, 2011 and 2010 All other schedules of the companies for which inclusion is required in the applicable...

  • Page 149
    ... to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and...

  • Page 150
    ... Gifford /s/ Paul A. La Camera Paul A. La Camera Trustee February 27, 2013 Trustee February 27, 2013 /s/ Kenneth R. Leibler Kenneth R. Leibler /s/ William C. Van Faasen William C. Van Faasen Trustee February 27, 2013 Trustee February 27, 2013 /s/ Frederica M. Williams Frederica M. Williams...

  • Page 151
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  • Page 152
    ...Assets Total Assets LIABILITIES AND CAPITALIZATION Current Liabilities: Notes Payable Long-Term Debt - Current Portion Accounts Payable Accounts Payable to Affiliated Companies Accrued Taxes Accrued Interest Other Total Current Liabilities Deferred Credits and Other Liabilities: Other Total Deferred...

  • Page 153
    ... Other Comprehensive Income/(Loss), Net of Tax: Qualified Cash Flow Hedging Instruments Changes in Unrealized Gains on Other Securities Change in Funded Status of Pension, SERP and PBOP Benefit Plans Other Comprehensive Income/(Loss), Net of Tax Comprehensive Income Attributable to Noncontrolling...

  • Page 154
    ...(10,833) $ 22,886 1,291 See the Combined Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for a description of significant accounting matters related to NU parent, including NU common shares information as described in Note 17, "Common Shares," material obligations and...

  • Page 155
    ...debt expense. The PURA issued an order allowing CL&P and Yankee Gas to accelerate the recovery of uncollectible hardship accounts receivable outstanding for greater than 90 days. As a result of the January 2011 DPU rate case decision, WMECO is allowed to recover amounts associated with basic service...

  • Page 156
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  • Page 158
    ... Financial Officer David R. McHale Executive Vice President and Chief Administrative Officer Leon J. Olivier Executive Vice President and Chief Operating Officer Gregory B. Butler Senior Vice President, General Counsel and Secretary Christine M. Carmody Senior Vice President - Human Resources...

  • Page 159
    ... Dividends Direct deposit provides the convenience of automatic and immediate access to your funds, while eliminating the possibility of mail delays and lost, stolen or destroyed checks. This service is free of charge to you. Please call 1-800-9997269 to request an enrollment form. Transfer Agent...

  • Page 160
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