10-Q 1 june2008form10qfinal.htm FORM 10-Q June 2008 Form 10-Q



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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE     
SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Quarterly Period Ended June 30, 2008     

 

OR     

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE     
SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from ____________ to ____________


Commission
File Number

Registrant; State of Incorporation;
Address; and Telephone Number

I.R.S. Employer
Identification No.

 

 

 

1-5324

NORTHEAST UTILITIES
(a Massachusetts voluntary association)
One Federal Street
Building 111-4
Springfield, Massachusetts 01105
Telephone:  (413) 785-5871

04-2147929

 

 

 

0-00404

THE CONNECTICUT LIGHT AND POWER COMPANY
(a Connecticut corporation)
107 Selden Street
Berlin, Connecticut 06037-1616
Telephone:  (860) 665-5000

06-0303850

 

 

 

1-6392

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
(a New Hampshire corporation)
Energy Park
780 North Commercial Street
Manchester, New Hampshire 03101-1134
Telephone:  (603) 669-4000

02-0181050

 

 

 

0-7624

WESTERN MASSACHUSETTS ELECTRIC COMPANY
(a Massachusetts corporation)
One Federal Street
Building 111-4
Springfield, Massachusetts 01105
Telephone:  (413) 785-5871

04-1961130

____________________________________________________________________________________





Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:


 

Yes

No

 

 

 

 

Ö

 


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.  (check one):


 

Large
Accelerated Filer

 

Accelerated
Filer

 

Non-accelerated
Filer

 

 

 

 

 

 

Northeast Utilities

Ö

 

 

 

 

The Connecticut Light and Power Company

 

 

 

 

Ö

Public Service Company of New Hampshire

 

 

 

 

Ö

Western Massachusetts Electric Company

 

 

 

 

Ö


Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):


 

Yes

No

 

 

 

Northeast Utilities

 

Ö

The Connecticut Light and Power Company

 

Ö

Public Service Company of New Hampshire

 

Ö

Western Massachusetts Electric Company

 

Ö


Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date:

Company - Class of Stock

Outstanding at July 31, 2008

Northeast Utilities
Common stock, $5.00 par value


155,560,418 shares

 

 

The Connecticut Light and Power Company
Common stock, $10.00 par value


6,035,205 shares

 

 

Public Service Company of New Hampshire
Common stock, $1.00 par value


301 shares

 

 

Western Massachusetts Electric Company
Common stock, $25.00 par value


434,653 shares


Northeast Utilities holds all of the 6,035,205 shares, 301 shares, and 434,653 shares of the outstanding common stock of The Connecticut Light and Power Company, Public Service Company of New Hampshire and Western Massachusetts Electric Company, respectively.  


Public Service Company of New Hampshire and Western Massachusetts Electric Company each meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.








GLOSSARY OF TERMS

The following is a glossary of frequently used abbreviations or acronyms that are found in this report.  

 

 

NU COMPANIES,  SEGMENTS OR INVESTMENTS:

 

 

Boulos

E.S. Boulos Company

CL&P

The Connecticut Light and Power Company

Con Edison

Consolidated Edison, Inc.

CRC

CL&P Receivables Corporation

HWP

Holyoke Water Power Company

Mt. Tom

Mt. Tom generating plant

NGC

Northeast Generation Company

NGS

Northeast Generation Services Company and subsidiaries

NU or the company

Northeast Utilities

NU Enterprises

At June 30, 2008, NU Enterprises, Inc. is the parent company of Select Energy, NGS, and Boulos.  For further information, see Note 10, "Segment Information," to the condensed consolidated financial statements.

NU parent and other companies

NU parent and other companies is comprised of NU parent, Northeast Utilities Service Company, HWP (since January 1, 2007) and other subsidiaries, including The Rocky River Realty Company and The Quinnehtuk Company (both real estate subsidiaries), Mode 1 Communications, Inc. (telecommunications) and the nonenergy-related subsidiaries of Yankee (Yankee Energy Services Company), Yankee Energy Financial Services Company, and NorConn Properties, Inc.)

PSNH

Public Service Company of New Hampshire

Regulated companies

NU's regulated companies, comprised of the electric distribution and transmission segments of CL&P, PSNH, WMECO, the generation segment of PSNH, a natural gas local distribution company, and Yankee Gas.  For further information, see Note 10, "Segment Information," to the condensed consolidated financial statements.

SECI

Select Energy Contracting, Inc.

Select Energy

Select Energy, Inc.

SESI

Select Energy Services, Inc.

WMECO

Western Massachusetts Electric Company

Yankee

Yankee Energy System, Inc.

Yankee Gas

Yankee Gas Services Company

 

 

REGULATORS:

 

 

 

DPU

Massachusetts Department of Public Utilities (formerly the Massachusetts Department of Telecommunications and Energy (DTE))

DPUC

Connecticut Department of Public Utility Control

FERC

Federal Energy Regulatory Commission

NHPUC

New Hampshire Public Utilities Commission

SEC

Securities and Exchange Commission




i





OTHER: 

 

 

 

AFUDC

Allowance For Funds Used During Construction

CfD

Contract for Differences

CTA

Competitive Transition Assessment

EPS

Earnings Per Share

ES

Default Energy Service

FASB

Financial Accounting Standards Board

FMCC

Federally Mandated Congestion Charges

GSC

Generation Service Charge

ISO-NE

New England Independent System Operator or ISO New England, Inc.

KWH

Kilowatt-Hour

KV

Kilovolt

LOC

Letter of Credit

MW

Megawatts

NU 2007 Form 10-K

The Northeast Utilities and Subsidiaries combined 2007 Annual Report on Form 10-K as filed with the SEC

NYMPA

New York Municipal Power Agency

PBOP

Postretirement Benefits Other Than Pensions

Regulatory ROE

The average cost of capital method for calculating the return on equity related to the distribution and generation business segments excluding the wholesale transmission segment.

RMR

Reliability Must Run

ROE

Return on Equity

SBC

System Benefits Charge

SCRC

Stranded Cost Recovery Charge

SFAS

Statement of Financial Accounting Standards

TCAM

Transmission Cost Adjustment Mechanism

TSO

Transitional Standard Offer

UI

The United Illuminating Company

VAR

Voltage Ampere Reactive




ii




NORTHEAST UTILITIES AND SUBSIDIARIES
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

TABLE OF CONTENTS



 

Page

 

 

PART I - FINANCIAL INFORMATION

 

 

ITEM 1 - Condensed Consolidated Financial Statements for the Following Companies:

 

 

 

Northeast Utilities and Subsidiaries

 

 

Condensed Consolidated Balance Sheets (Unaudited) - June 30, 2008 and December 31, 2007

2

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Six Months Ended June 30, 2008 and 2007

4

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2008 and 2007

5

 

Notes to Condensed Consolidated Financial Statements (Unaudited - all companies)

6

 

Report of Independent Registered Public Accounting Firm

31

 

The Connecticut Light and Power Company and Subsidiaries

 

 

Condensed Consolidated Balance Sheets (Unaudited) - June 30, 2008 and December 31, 2007

34

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Six Months Ended June 30, 2008 and 2007

36

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2008 and 2007

37

 

Public Service Company of New Hampshire and Subsidiaries

 

 

Condensed Consolidated Balance Sheets (Unaudited) - June 30, 2008 and December 31, 2007

40

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Six Months Ended June 30, 2008 and 2007

42

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2008 and 2007

43

 

Western Massachusetts Electric Company and Subsidiary

 

 

Condensed Consolidated Balance Sheets (Unaudited) - June 30, 2008 and December 31, 2007

46

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Six Months Ended June 30, 2008 and 2007

48

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2008 and 2007

49

 




iii





 

Page

 

 

ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations for the following  companies:

 

 

Northeast Utilities and Subsidiaries

50

 

The Connecticut Light and Power Company and Subsidiaries

75

 

Public Service Company of New Hampshire and Subsidiaries

79

 

Western Massachusetts Electric Company and Subsidiary

82

 

ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk

85

 

 

ITEM 4 - Controls and Procedures

86

 

PART II - OTHER INFORMATION

 

ITEM 1 - Legal Proceedings

87

 

ITEM 1A - Risk Factors

87

 

ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds

87

 

 

ITEM 4 - Submission of Matters to a Vote of Security Holders

87

 

ITEM 6 - Exhibits

89

 

SIGNATURES

91

 





iv




NORTHEAST UTILITIES AND SUBSIDIARIES



1





NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

June 30,

 

December 31,

 

2008

 

2007

 

(Thousands of Dollars)

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

  Cash and cash equivalents

$                12,128 

 

$                15,104 

  Investments in securitizable assets (Note 1E)

 

308,182 

  Receivables, less provision for uncollectible

 

 

 

    accounts of $41,863 in 2008 and $25,529 in 2007

584,494 

 

401,283 

  Unbilled revenues

195,414 

 

101,860 

  Taxes receivable

75,574 

 

13,850 

  Fuel, materials and supplies

228,767 

 

210,850 

  Marketable securities - current

82,488 

 

70,816 

  Derivative assets - current

177,793 

 

105,517 

  Prepayments and other

37,028 

 

58,794 

 

1,393,686 

 

1,286,256 

 

 

 

 

Property, Plant and Equipment:

 

 

 

  Electric utility

8,027,373 

 

7,594,606 

  Gas utility

1,003,459 

 

977,290 

  Other

287,391 

 

310,535 

 

9,318,223 

 

8,882,431 

    Less: Accumulated depreciation: $2,559,324 for electric

 

 

 

               and gas utility and $158,305 for other in 2008;

 

 

 

               $2,483,570 for electric and gas utility and

 

 

 

               $178,193 for other in 2007

2,717,629 

 

2,661,763 

 

6,600,594 

 

6,220,668 

  Construction work in progress

1,121,154 

 

1,009,277 

 

7,721,748 

 

7,229,945 

 

 

 

 

Deferred Debits and Other Assets:

 

 

 

  Regulatory assets

2,449,551 

 

2,057,083 

  Goodwill

287,591 

 

287,591 

  Prepaid pension

219,431 

 

202,512 

  Marketable securities - long-term

38,625 

 

53,281 

  Derivative assets - long-term

446,631 

 

298,001 

  Other

151,989 

 

167,153 

 

3,593,818 

 

3,065,621 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

$         12,709,252 

 

$         11,581,822 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 




2





NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

June 30,

 

December 31,

 

2008

 

2007

 

(Thousands of Dollars)

LIABILITIES AND CAPITALIZATION

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

  Notes payable to banks

$                 87,000 

 

$                 79,000 

  Long-term debt - current portion

54,286 

 

154,286 

  Accounts payable

568,774 

 

598,546 

  Accrued interest

61,786 

 

56,592 

  Derivative liabilities - current

35,898 

 

71,601 

  Other

304,795 

 

246,125 

 

1,112,539 

 

1,206,150 

 

 

 

 

Rate Reduction Bonds

802,259 

 

917,436 

 

 

 

 

Deferred Credits and Other Liabilities:

 

 

 

  Accumulated deferred income taxes

1,109,783 

 

1,067,490 

  Accumulated deferred investment tax credits

27,108 

 

28,845 

  Deferred contractual obligations

205,935 

 

222,908 

  Regulatory liabilities

897,282 

 

851,780 

  Derivative liabilities - long-term

811,147 

 

208,461 

  Accrued postretirement benefits

170,641 

 

181,507 

  Other

426,614 

 

383,611 

 

3,648,510 

 

2,944,602 

 

 

 

 

Capitalization:

 

 

 

  Long-Term Debt

4,090,288 

 

3,483,599 

 

 

 

 

  Preferred Stock of Subsidiary - Non-Redeemable

116,200 

 

116,200 

 

 

 

 

  Common Shareholders' Equity:

 

 

 

    Common shares, $5 par value - authorized

 

 

 

      225,000,000 shares; 176,160,857 shares issued

 

 

 

      and 155,523,764 shares outstanding in 2008 and

 

 

 

      175,924,694 shares issued and 155,079,770 shares

 

 

 

      outstanding in 2007

880,804 

 

879,623 

    Capital surplus, paid in

1,469,588 

 

1,465,946 

    Deferred contribution plan - employee stock

 

 

 

      ownership plan

(21,481)

 

(26,352)

    Retained earnings

967,329 

 

946,792 

    Accumulated other comprehensive income

4,819 

 

9,359 

    Treasury stock, 19,708,136 shares in 2008

 

 

 

      and 19,705,545 shares in 2007

(361,603)

 

(361,533)

  Common Shareholders' Equity

2,939,456 

 

2,913,835 

Total Capitalization

7,145,944 

 

6,513,634 

 

 

 

 

Commitments and Contingencies (Note 5)

 

 

 

 

 

 

 

Total Liabilities and Capitalization

$          12,709,252 

 

$          11,581,822 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 

 

 

 

 

 




3





NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2008

 

2007

 

2008

 

2007

 

(Thousands of Dollars, except share information)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$   1,325,345 

 

$   1,391,772 

 

$   2,845,312 

 

$   3,095,290 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

  Operation -

 

 

 

 

 

 

 

     Fuel, purchased and net interchange power

661,699 

 

804,802 

 

1,485,016 

 

1,875,288 

     Other

237,203 

 

245,879 

 

523,084 

 

483,112 

  Maintenance

70,896 

 

59,842 

 

127,605 

 

105,827 

  Depreciation

68,321 

 

63,420 

 

136,075 

 

126,889 

  Amortization of regulatory assets/(liabilities), net

41,945 

 

(3,453)

 

70,800 

 

2,770 

  Amortization of rate reduction bonds

47,884 

 

47,114 

 

101,234 

 

98,913 

  Taxes other than income taxes

59,278 

 

57,360 

 

131,107 

 

129,950 

       Total operating expenses

1,187,226 

 

1,274,964 

 

2,574,921 

 

2,822,749 

Operating Income

138,119 

 

116,808 

 

270,391 

 

272,541 

 

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

 

 

  Interest on long-term debt

46,449 

 

40,234 

 

89,222 

 

76,447 

  Interest on rate reduction bonds

12,987 

 

15,839 

 

26,703 

 

32,189 

  Other interest

6,624 

 

3,504 

 

12,776 

 

10,223 

       Interest expense, net

66,060 

 

59,577 

 

128,701 

 

118,859 

Other Income, Net

10,370 

 

11,873 

 

23,928 

 

25,942 

Income from Continuing Operations Before

 

 

 

 

 

 

 

  Income Tax Expense

82,429 

 

69,104 

 

165,618 

 

179,624 

Income Tax Expense

23,192 

 

21,703 

 

46,598 

 

54,426 

Income from Continuing Operations Before

 

 

 

 

 

 

 

  Preferred Dividends of Subsidiary

59,237 

 

47,401 

 

119,020 

 

125,198 

Preferred Dividends of Subsidiary

1,389 

 

1,389 

 

2,779 

 

2,779 

Income from Continuing Operations

57,848 

 

46,012 

 

116,241 

 

122,419 

Discontinued Operations:

 

 

 

 

 

 

 

  Income from Discontinued Operations

 

564 

 

 

248 

  Gains from Sale/Disposition of Discontinued Operations

 

3,925 

 

 

2,017 

  Income Tax Expense

 

1,948 

 

 

1,037 

Income from Discontinued Operations

 

2,541 

 

 

1,228 

Net Income

$        57,848 

 

$        48,553 

 

$      116,241 

 

$      123,647 

 

 

 

 

 

 

 

 

Basic and Fully Diluted Earnings Per Common Share:

 

 

 

 

 

 

 

  Income from Continuing Operations

$            0.37 

 

$            0.30 

 

$            0.75 

 

$            0.79 

  Income from Discontinued Operations

 

0.01 

 

 

0.01 

Basic and Fully Diluted Earnings Per Common Share

$            0.37 

 

$            0.31 

 

$            0.75 

 

$            0.80 

 

 

 

 

 

 

 

 

Basic Common Shares Outstanding (weighted average)

155,476,492 

 

154,729,676 

 

155,381,302 

 

154,539,678 

 

 

 

 

 

 

 

 

Fully Diluted Common Shares Outstanding (weighted average)

155,895,348 

 

155,213,094 

 

155,808,481 

 

155,102,672 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

 

 

 



4





NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

(Unaudited)

 

Six Months Ended

 

 

June 30,

 

 

2008

 

 

2007

 

 

(Thousands of Dollars)

 

 

 

Operating Activities:

 

 

 

 

 

Net income

$

116,241 

 

$

123,647 

Adjustments to reconcile to net cash flows

 

 

 

 

 

  provided by/(used in) operating activities:

 

 

 

 

 

Bad debt expense

 

13,163 

 

 

12,917 

Depreciation

 

136,075 

 

 

126,889 

Deferred income taxes

 

52,995 

 

 

 (10,158)

Pension expense, net of capitalized portion

 

4,011 

 

 

10,388 

(Deferral)/amortization of recoverable energy costs

 

 (6,046)

 

 

6,248 

Amortization of rate reduction bonds

 

101,234 

 

 

98,913 

Amortization of regulatory assets, net

 

70,800 

 

 

2,770 

Regulatory (refunds and underrecoveries)/overrecoveries

 

 (128,830)

 

 

64,174 

Derivative assets and liabilities

 

 (25,216)

 

 

 (36,830)

Deferred contractual obligations

 

 (16,973)

 

 

 (23,489)

Other non-cash adjustments

 

 (7,165)

 

 

 (2,989)

Other sources of cash

 

274 

 

 

Other uses of cash

 

 (15,552)

 

 

 (35,019)

Changes in current assets and liabilities:

 

 

 

 

 

Receivables and unbilled revenues, net

 

35,760 

 

 

56,248 

Fuel, materials and supplies

 

 (17,946)

 

 

 (12,135)

Investments in securitizable assets

 

 (25,787)

 

 

17,674 

Other current assets

 

6,426 

 

 

7,177 

Accounts payable

 

 (20,648)

 

 

 (67,312)

Counterparty deposits and margin special deposits

 

59,110 

 

 

18,926 

Taxes receivable/accrued

 

 (31,412)

 

 

 (372,867)

Other current liabilities

 

 (21,489)

 

 

 (22,672)

Net cash flows provided by/(used in) operating activities

 

279,025 

 

 

 (37,500)

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

Investments in property and plant

 

 (625,133)

 

 

 (491,137)

Proceeds from sales of investment securities

 

128,778 

 

 

101,113 

Purchases of investment securities

 

 (130,105)

 

 

 (103,902)

Rate reduction bond escrow and other deposits

 

9,010 

 

 

8,567 

Other investing activities

 

2,385 

 

 

42 

Net cash flows used in investing activities

 

 (615,065)

 

 

 (485,317)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

Issuance of common shares

 

4,562 

 

 

8,520 

Issuance of long-term debt

 

660,000 

 

 

345,000 

Retirements of rate reduction bonds

 

 (115,177)

 

 

 (109,755)

Increase in short-term debt

 

8,000 

 

 

Retirements of long-term debt

 

 (154,286)

 

 

 (4,877)

Cash dividends on common shares

 

 (62,574)

 

 

 (58,502)

Other financing activities

 

 (7,461)

 

 

 (657)

Net cash flows provided by financing activities

 

333,064 

 

 

179,729 

Net decrease in cash and cash equivalents

 

 (2,976)

 

 

 (343,088)

Cash and cash equivalents - beginning of period

 

15,104 

 

 

481,911 

Cash and cash equivalents - end of period

$

12,128 

 

$

138,823 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 




5




NORTHEAST UTILITIES AND SUBSIDIARIES

THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (All Companies)


A.

Presentation


Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the entirety of this Quarterly Report on Form 10-Q, the first quarter 2008 Quarterly Report on Form 10-Q and the Annual Reports of Northeast Utilities (NU or the company), The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), and Western Massachusetts Electric Company (WMECO), which were filed with the SEC as part of the Northeast Utilities and subsidiaries combined 2007 Annual Report on Form 10-K (NU 2007 Form 10-K).  The accompanying condensed consolidated financial statements contain, in the opinion of management, all adjustments (including normal, recurring adjustments) necessary to present fairly NU's and the above companies' financial position at June 30, 2008 and December 31, 2007, the results of operations for the three and six months ended June 30, 2008 and 2007 and cash flows for the six months ended June 30, 2008 and 2007.  The results of operations and cash flows for the six months ended June 30, 2008 and 2007 are not necessarily indicative of the results expected for a full year.  


The condensed consolidated financial statements of NU and its subsidiaries, as applicable, include the accounts of all their respective subsidiaries.  Intercompany transactions have been eliminated in consolidation.


The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.


Certain reclassifications of prior period data included in the accompanying condensed consolidated financial statements have been made to conform with the current period's presentation.


NU's condensed consolidated statements of income for the three and six months ended June 30, 2007 classify activity related to the following subsidiaries as discontinued operations:


·

Northeast Generation Company (NGC),

·

The Mt. Tom generating plant (Mt. Tom) previously owned by Holyoke Water Power Company (HWP), and

·

Select Energy Contracting, Inc. (including Reeds Ferry Supply Co., Inc.) (SECI).  


For the three and six months ended June 30, 2007, portions of SECI that were included in continuing operations have been reclassified to discontinued operations in the condensed consolidated statements of income as a result of winding down SECI operations in 2007.  The amounts of these reclassifications are as follows:



(Millions of Dollars)

 

Three Months Ended

June 30, 2007

 

Six Months Ended

June 30, 2007

Operating revenues

 

$

0.3 

 

$

1.1 

Operating benefits/(expenses)

 

 

0.2 

 

 

(0.9)

Income from discontinued operations  

 

 

0.5 

 

 

0.2 

Income tax expense from discontinued operations

 

 

(0.4)

 

 

(0.2)

Net income from discontinued operations

 

 

0.1 

 

 


For further information regarding discontinued operations, see Note 7, "Discontinued Operations," to the condensed consolidated financial statements.  




6




B.

Regulatory Accounting


The accounting policies of the regulated companies conform to accounting principles generally accepted in the United States of America applicable to rate-regulated enterprises and historically reflect the effects of the rate-making process in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation."


The transmission and distribution segments of CL&P, PSNH and WMECO, along with PSNH's generation segment and Yankee Gas Service Company's (Yankee Gas) distribution segment, continue to be cost-of-service, rate regulated.  Management believes that the application of SFAS No. 71 to those segments continues to be appropriate.  Management also believes it is probable that NU's regulated companies will recover their investments in long-lived assets, including regulatory assets.  All material net regulatory assets are earning an equity return, except for securitized regulatory assets and the majority of deferred benefit costs, which are not supported by equity.  Amortization and deferrals of regulatory assets/(liabilities) are included on a net basis in amortization expense on the accompanying condensed consolidated statements of income.  


Regulatory Assets:  The components of regulatory assets are as follows:  


 

 

At June 30, 2008


(Millions of Dollars)

 

NU
Consolidated

 


CL&P

 


PSNH

 


WMECO

 

Yankee Gas
and Other

Securitized assets

 

$

793.6 

 

$

464.3 

 

$

250.5 

 

$

78.8 

 

$

Income taxes, net

 

 

351.3 

 

 

298.0 

 

 

10.1 

 

 

34.1 

 

 

9.1 

Deferred benefit costs

 

 

171.7 

 

 

60.9 

 

 

45.6 

 

 

6.3 

 

 

58.9 

Unrecovered contractual obligations

 

 

179.1 

 

 

140.2 

 

 

 

 

38.9 

 

 

Regulatory assets offsetting regulated
  company derivative liabilities

 

 


629.2 

 

 


629.1 

 

 


 

 


 

 


0.1 

CL&P CTA and SBC undercollections

 

 

50.2 

 

 

50.2 

 

 

 

 

 

 

Other regulatory assets

 

 

274.5 

 

 

135.7 

 

 

67.9 

 

 

15.8 

 

 

55.1 

Totals

 

$

2,449.6 

 

$

1,778.4 

 

$

374.1 

 

$

173.9 

 

$

123.2 


 

 

At December 31, 2007


(Millions of Dollars)

 

NU
Consolidated

 


CL&P

 


PSNH

 


WMECO

 

Yankee Gas
and Other

Securitized assets

 

$

907.0 

 

$

548.2 

 

$

273.2 

 

$

85.6 

 

$

Income taxes, net

 

 

335.5 

 

 

279.4 

 

 

10.3 

 

 

38.2 

 

 

7.6 

Deferred benefit costs

 

 

201.4 

 

 

72.2 

 

 

50.4 

 

 

8.2 

 

 

70.6 

Unrecovered contractual obligations

 

 

189.9 

 

 

148.0 

 

 

 

 

42.0 

 

 

(0.1)

Regulatory assets offsetting regulated
  company derivative liabilities

 

 


122.3 

 

 


119.8 

 

 


2.5 

 

 


 

 


CL&P CTA and SBC undercollections

 

 

90.6 

 

 

90.6 

 

 

 

 

 

 

Other regulatory assets

 

 

210.4 

 

 

71.8 

 

 

65.0 

 

 

19.9 

 

 

53.7 

Totals

 

$

2,057.1 

 

$

1,330.0 

 

$

401.4 

 

$

193.9 

 

$

131.8 


For information regarding regulatory assets offsetting regulated company derivative liabilities, see Note 2, "Derivative Instruments," to the condensed consolidated financial statements.  


Included in NU's other regulatory assets are the regulatory assets associated with the implementation of Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143," totaling $43 million at June 30, 2008 and $40.6 million at December 31, 2007.  Management believes that recovery of these regulatory assets is probable.  


Additionally, the regulated companies had $2.8 million and $11.9 million of regulatory costs at June 30, 2008 and December 31, 2007, respectively, that were included in deferred debits and other assets - other on the accompanying condensed consolidated balance sheets.  These amounts represent regulatory costs that have not yet been approved for recovery by the applicable regulatory agency.  Management believes these costs are recoverable in future cost-of-service regulated rates.




7




Regulatory Liabilities:  The components of regulatory liabilities are as follows:  


 

 

At June 30, 2008


(Millions of Dollars)

 

NU
Consolidated

 


CL&P

 


PSNH

 


WMECO

 


Yankee Gas

Cost of removal

 

$

237.1 

 

$

97.3 

 

$

67.7 

 

$

20.8 

 

$

51.3 

Regulatory liabilities offsetting
  regulated company derivative assets

 

 


478.6 

 

 


384.2 

 

 


92.7 

 

 


 

 


1.7 

CL&P GSC and FMCC overcollections

 

 

45.1 

 

 

45.1 

 

 

 

 

 

 

Other regulatory liabilities

 

 

136.5 

 

 

73.2 

 

 

25.0 

 

 

15.6 

 

 

22.7 

Totals

 

$

897.3 

 

$

599.8 

 

$

185.4 

 

$

36.4 

 

$

75.7 


 

 

At December 31, 2007


(Millions of Dollars)

 

NU
Consolidated

 


CL&P

 


PSNH

 


WMECO

 


Yankee Gas

Cost of removal

 

$

262.6 

 

$

116.6 

 

$

72.8 

 

$

21.5 

 

$

51.7 

Regulatory liabilities offsetting
  regulated company derivative assets

 

 


330.4 

 

 


313.0 

 

 


17.2 

 

 


 

 


0.2 

CL&P GSC and FMCC overcollections

 

 

119.2 

 

 

119.2 

 

 

 

 

 

 

Other regulatory liabilities

 

 

139.6 

 

 

52.7 

 

 

37.6 

 

 

17.9 

 

 

31.4 

Totals

 

$

851.8 

 

$

601.5 

 

$

127.6 

 

$

39.4 

 

$

83.3 


For information regarding regulatory liabilities offsetting regulated company derivative assets, see Note 2, "Derivative Instruments," to the condensed consolidated financial statements.


C.

Fair Value Measurements


On January 1, 2008, the company adopted SFAS No. 157, "Fair Value Measurements," which establishes a framework for defining and measuring fair value and requires expanded disclosures about fair value measurements.  SFAS No. 157:


·

Defines fair value as the price that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).


·

Establishes a three-level fair value hierarchy based upon the observability of inputs to the valuations of assets and liabilities.


·

Requires consideration of the company's own creditworthiness and risk of nonperformance when valuing its liabilities.


·

Requires prospective implementation with adjustments to fair value reflected in earnings, similar to a change in estimate, with exceptions including recognition of previously deferred initial gains or losses described below.  


·

Requires recognition in retained earnings of previously deferred initial gains or losses on derivative contracts whose estimated fair values are based on significant unobservable inputs.  Recognition of the initial gains or losses was previously prohibited under Emerging Issues Task Force Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities."  CL&P’s initial gains and losses on its contracts for differences (CfDs) that would have been recorded in retained earnings upon adoption were recorded as regulatory assets and liabilities because their costs or benefits are expected to be fully recovered from or refunded to customers.  

  

The company applied SFAS No. 157 to the regulated and unregulated companies' derivative contracts that are recorded at fair value and to the marketable securities held in NU's Rabbi Trust and WMECO's prior spent nuclear fuel trust.  SFAS No. 157 also applies to investment valuations for NU’s pension and other postretirement benefit plans beginning as of December 31, 2008, and beginning in 2009, to nonrecurring fair value measurements of non-financial assets and liabilities such as goodwill and asset retirement obligations.


As a result of adopting SFAS No. 157, the company recorded a pre-tax charge to earnings of $6.1 million as of January 1, 2008 related to derivative liabilities for its remaining unregulated wholesale marketing contracts.  For the three and six months ended June 30, 2008, the company recorded a $1 million and $2.2 million pre-tax benefit, respectively, to partially reverse the exit price impact recorded under SFAS No. 157 as the company served out rather than exited the contracts.  


The company also recorded changes in fair value of certain derivative contracts of CL&P.  Because CL&P is a cost-of-service, rate regulated entity, the cost or benefit of the contracts is expected to be fully recovered from or refunded to CL&P's customers and an offsetting regulatory asset or liability was recorded to reflect these changes.  As of January 1, 2008, implementing SFAS No. 157



8




resulted in a total increase to CL&P's derivative liabilities, with an offset to regulatory assets, of approximately $590 million, and a total decrease to derivative assets, with an offset to regulatory liabilities, of approximately $30 million.


Fair Value Hierarchy:  As required by SFAS No. 157, in measuring fair value the company uses observable market data when available and minimizes the use of unobservable inputs.  Unobservable inputs are needed to value certain derivative contracts due to complexities in contractual terms and the long duration of a contract.  SFAS No. 157 requires inputs used in fair value measurements to be categorized into three fair value hierarchy levels for disclosure purposes.  The entire fair value measurement is categorized based on the lowest level of input that is significant to the fair value measurement.  


The three levels of the fair value hierarchy are described below:


Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  


Level 2 - Inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs are observable.


Level 3 - Quoted market prices are not available.  Fair value is derived from valuation techniques in which one or more significant inputs or assumptions are unobservable.  Where possible, valuation techniques incorporate observable market inputs that can be validated to external sources such as industry exchanges, including prices of energy and energy-related products.  Significant unobservable inputs are used in the valuations, including items such as energy and energy-related product prices in future years for which observable prices are not yet available, future contract quantities under full-requirements or supplemental sales contracts, and market volatilities.  Items valued using these valuation techniques are classified according to the lowest level for which there is at least one input that is significant to the valuation.  Therefore, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.   


Determination of Fair Value:  The following is a description of the valuation techniques utilized in our fair value measurements:


Derivative contracts:  Many of the company's derivative positions that are recorded at fair value are classified as Level 3 within the fair value hierarchy and are valued using models that incorporate both observable and unobservable inputs.  Fair value is modeled using techniques such as discounted cash flow approaches adjusted for assumptions relating to exit price and the Black-Scholes option pricing model, incorporating the terms of the contracts.  Significant unobservable inputs utilized in the valuations include energy and energy-related product prices for future years for long-dated derivative contracts, future contract quantities under full requirements and supplemental sales contracts, and market volatilities.  Discounted cash flow valuations incorporate estimates of premiums or discounts that would be required by a market participant to arrive at an exit price, using available historical market transaction information.  Valuations of derivative contracts also reflect nonperformance risk, including credit.  The derivative contracts classified as Level 3 include NU Enterprises, Inc.'s (NU Enterprises) remaining wholesale marketing contract and its related supply contracts, CL&P's CfDs, CL&P's contracts with certain independent power producers (IPPs) and regulated company options and financial transmission rights (FTRs).


Other derivative contracts recorded at fair value are classified as Level 2 within the fair value hierarchy.  An active market for the same or similar contracts exists for these contracts, which include regulated company forward contracts to purchase energy and interest rate swap agreements for the regulated companies and NU parent.  For these contracts, valuations are based on quoted prices in the market and include some modeling using market-based assumptions.  


For further information on derivative contracts, see Note 2, "Derivative Instruments," to the condensed consolidated financial statements.


Marketable securities:  The company holds in trust marketable securities, which include equity securities, mutual funds and cash equivalents, and fixed maturity securities.


Equity securities, mutual funds and cash equivalents are classified as Level 1 in the fair value hierarchy.  These investments are traded in active markets and quoted prices are available for identical investments.


Fixed maturity securities classified as Level 2 within the fair value hierarchy include U.S. Treasury securities, corporate bonds, collateralized mortgage obligations, U.S. pass-through bonds, asset-backed securities, commercial mortgage-backed securities, and commercial paper.  The fair value of these instruments is estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  The pricing models utilize observable inputs such as recent trades for the same or similar instruments, yield curves, discount margins and bond structures.  



9





For further information see Note 3, "Fair Value Measurements," to the accompanying condensed consolidated financial statements.


D.

Allowance for Funds Used During Construction


The allowance for funds used during construction (AFUDC) is included in the cost of the regulated companies' utility plant and represents the cost of borrowed and equity funds used to finance construction.  The portion of AFUDC attributable to borrowed funds is recorded as a reduction of other interest expense, and the AFUDC related to equity funds is recorded as other income on the accompanying condensed consolidated statements of income:


 

For the Three Months Ended

 

For the Six Months Ended

(Millions of Dollars, except percentages)

June 30, 2008

 

June 30, 2007

 

June 30, 2008

 

June 30, 2007

Borrowed funds

$

4.4    

 

$

4.3    

 

$

9.1    

 

$

8.6    

Equity funds

 

6.8    

 

 

4.0    

 

 

15.1    

 

 

6.3    

Totals

$

11.2    

 

$

8.3    

 

$

24.2    

 

$

14.9    

Average AFUDC rates

 

7.9% 

 

 

7.5% 

 

 

8.1% 

 

 

7.2% 


The regulated companies' average AFUDC rate is based on a Federal Energy Regulatory Commission (FERC) prescribed formula that produces an average rate using the cost of a company's short-term financings as well as a company's capitalization (preferred stock, long-term debt and common equity).  The average rate is applied to eligible construction work in progress (CWIP) amounts to calculate AFUDC.  Although AFUDC is recorded on 100 percent of CL&P's CWIP for its major transmission projects in southwest Connecticut, 50 percent of this AFUDC is being reserved as a regulatory liability to reflect current rate base recovery for 50 percent of the CWIP as a result of FERC approved transmission incentives.


E.

Sale of Customer Receivables


Prior to June 30, 2008, under the Receivables Purchase and Sale Agreement, CL&P Receivables Corporation (CRC), a consolidated, wholly-owned subsidiary of CL&P, purchased an undivided interest in CL&P's accounts receivable and unbilled revenues and could sell up to $100 million thereof to a financial institution.  At December 31, 2007, there were $20 million in such sales.  On June 30, 2008, there were no receivables sold under that facility, and CL&P chose to terminate the Receivables Purchase and Sale Agreement.   


At December 31, 2007, amounts totaling $308.2 million sold to CRC by CL&P but not sold to the financial institution were included in investments in securitizable assets on the accompanying condensed consolidated balance sheet.  These amounts would have been excluded from CL&P's assets in the event of bankruptcy by CL&P.  As of June 30, 2008, these amounts were no longer excludable from CL&P's assets in the event of bankruptcy and were no longer securitizable.  Since CL&P chose to terminate the Receivables Purchase and Sale Agreement at June 30, 2008, amounts held by CRC were included in accounts receivables and unbilled revenues on the accompanying condensed consolidated balance sheet.  


F.

Cash and Cash Equivalents


Cash and cash equivalents include cash on hand and short-term cash investments that are highly liquid in nature and have original maturities of three months or less.  At the end of each reporting period, any overdraft amounts are reclassified from cash and cash equivalents to accounts payable.


G.

Special Deposits and Counterparty Deposits


To the extent Select Energy, Inc. (Select Energy) requires collateral from counterparties, or the counterparties require collateral from Select Energy, cash held on deposit by Select Energy or with unaffiliated counterparties and brokerage firms as a part of the total collateral required based on Select Energy’s position in the transaction.  Select Energy's right to use cash collateral is determined by the terms of the related agreements.  Key factors affecting the unrestricted status of a portion of this cash collateral include the financial standing of Select Energy and of NU as its credit supporter.  


Special deposits paid to unaffiliated counterparties and brokerage firms totaled $18.9 million at December 31, 2007.  There were no special deposits as of June 30, 2008.  These amounts are recorded as current assets and are included in prepayments and other on the accompanying condensed consolidated balance sheets.  Balances collected from counterparties resulting from Select Energy’s credit management activities totaled $6.4 million at June 30, 2008.  There were no counterparty deposits for Select Energy as of December 31, 2007.  These amounts are recorded as current liabilities and are included in other current liabilities on the accompanying condensed consolidated balance sheets.  




10




CL&P and WMECO had $24.8 million and $9 million, respectively, of counterparty deposits at June 30, 2008 related to credit management activities.  These amounts were recorded as current liabilities - other on the accompanying condensed consolidated balance sheets.  There were no counterparty deposits for these companies as of December 31, 2007.


NU also had amounts on deposit related to special purpose entities used to facilitate the issuance of rate reduction bonds and certificates.  These amounts totaled $34.5 million and $43.5 million at June 30, 2008 and December 31, 2007, respectively.  These amounts totaled $8.9 million and $14.3 million for CL&P, $21.2 million and $24.4 million for PSNH, and $4.4 million and $4.8 million for WMECO at June 30, 2008 and December 31, 2007, respectively.  In addition, the company had $6.5 million and $6.4 million in other cash deposits held with unaffiliated parties at June 30, 2008 and December 31, 2007, respectively, primarily related to CL&P's transmission projects.  These amounts were included in deferred debits and other assets - other on the accompanying condensed consolidated balance sheets.


H.

Other Income, Net


The pre-tax components of other income/(loss) items are as follows:


NU

 

For the Three Months Ended

 

For the Six Months Ended

(Millions of Dollars)

 

June 30, 2008

 

June 30, 2007

 

June 30, 2008

 

June 30, 2007

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Investment income

 

$

2.0 

 

$

5.9 

 

$

3.9 

 

$

14.4 

  AFUDC - equity funds

 

 

6.8 

 

 

4.0 

 

 

15.1 

 

 

6.3 

  Energy Independence Act incentives

 

 

3.4 

 

 

2.2 

 

 

8.9 

 

 

4.9 

  Other

 

 

0.2 

 

 

0.4 

 

 

0.4 

 

 

0.9 

Total Other Income

 

 

12.4 

 

 

12.5 

 

 

28.3 

 

 

26.5 

Other Loss:

 

 

 

 

 

 

 

 

 

 

 

 

  Investment loss

 

 

(1.2)

 

 

 

 

(3.8)

 

 

  Investment write-down

 

 

 

 

(0.5)

 

 

 

 

(0.5)

  Other

 

 

(0.8)

 

 

(0.1)

 

 

(0.6)

 

 

(0.1)

Total Other Loss

 

 

(2.0)

 

 

(0.6)

 

 

(4.4)

 

 

(0.6)

Total Other Income, Net

 

$

10.4 

 

$

11.9 

 

$

23.9 

 

$

25.9 


CL&P

 

For the Three Months Ended

 

For the Six Months Ended

(Millions of Dollars)

 

June 30, 2008

 

June 30, 2007

 

June 30, 2008

 

June 30, 2007

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Investment income

 

$

1.9 

 

$

1.6 

 

$

3.3 

 

$

3.0 

  AFUDC - equity funds

 

 

5.8 

 

 

2.9 

 

 

12.4 

 

 

4.4 

  Energy Independence Act incentives

 

 

3.4 

 

 

2.2 

 

 

8.9 

 

 

4.9 

  Other

 

 

0.2 

 

 

0.2 

 

 

0.3 

 

 

0.5 

Total Other Income

 

 

11.3 

 

 

6.9 

 

 

24.9 

 

 

12.8 

Other Loss:

 

 

 

 

 

 

 

 

 

 

 

 

  Investment loss

 

 

(0.8)

 

 

 

 

 (2.6)

 

 

-

  Other

 

 

 (0.9)

 

 

 

 

(0.6)

 

 

(0.1)

Total Other Loss

 

 

(1.7)

 

 

 

 

(3.2)

 

 

(0.1)

Total Other Income, Net

 

$

9.6 

 

$

6.9 

 

$

21.7 

 

$

12.7 


PSNH

 

For the Three Months Ended

 

For the Six Months Ended

(Millions of Dollars)

 

June 30, 2008

 

June 30, 2007

 

June 30, 2008

 

June 30, 2007

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Investment income

 

$

0.6 

 

$

0.2 

 

$

0.9 

 

$

0.4 

  AFUDC - equity funds

 

 

0.9 

 

 

0.5 

 

 

2.2 

 

 

0.9 

  Other

 

 

 

 

 

 

0.1 

 

 

0.1 

Total Other Income

 

 

1.5 

 

 

0.7 

 

 

3.2 

 

 

1.4 

Investment loss

 

 

(0.2)

 

 

 

 

(0.6)

 

 

Total Other Income, Net

 

$

1.3 

 

$

0.7 

 

$

2.6 

 

$

1.4 




11





WMECO

 

For the Three Months Ended

 

For the Six Months Ended

(Millions of Dollars)

 

June 30, 2008

 

June 30, 2007

 

June 30, 2008

 

June 30, 2007

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Investment income

 

$

0.4 

 

$

0.3 

 

$

0.6 

 

$

0.6 

  AFUDC - equity funds

 

 

0.2 

 

 

 

 

0.4 

 

 

  Conservation and load management incentive

 

 

0.1 

 

 

0.1 

 

 

0.2 

 

 

0.3 

Total Other Income

 

 

0.7 

 

 

0.4 

 

 

1.2 

 

 

0.9 

Investment loss

 

 

(0.2)

 

 

 

 

(0.5)

 

 

Total Other Income, Net

 

$

0.5 

 

$

0.4 

 

$

0.7 

 

$

0.9 


Investment income for NU includes equity in earnings of regional nuclear generating and transmission companies of $0.3 million and $0.4 million for the three months ended June 30, 2008 and 2007, respectively, and $1 million and $1.1 million for the six months ended June 30, 2008 and 2007, respectively.  Equity in earnings relates to the company's investment in Connecticut Yankee Atomic Power Company (CYAPC), Maine Yankee Atomic Power Company, Yankee Atomic Electric Company and two regional transmission companies.


I.

Income Taxes


Tax Positions:  NU is currently working to resolve all open tax years.  It is reasonably possible that one or more of these open tax years could be resolved within the next twelve months.  NU has significantly advanced settlement positions with the Internal Revenue Service related to the timing of deducting expenses.  These settlement positions involve the 2002-2004 tax years, and if finally agreed upon, would result in a decrease in unrecognized tax benefits in the range of $20 million to $22 million, of which the tax impact on earnings is not expected to be material.  These ranges are $7 million to $8 million for CL&P, $9 million to $10 million for PSNH and $2 million to $3 million for WMECO.


J.

Other Taxes


Certain excise taxes levied by state or local governments are collected by NU from its customers.  These excise taxes are accounted for on a gross basis with collections in revenues and payments in expenses.  For the three and six months ended June 30, 2008, gross receipts taxes, franchise taxes and other excise taxes of $27.4 million and $58.4 million, respectively, were included in operating revenues and taxes other than income taxes on the accompanying condensed consolidated statements of income.  For the three and six months ended June 30, 2007, these amounts totaled $26.3 million and $58 million, respectively.  Certain sales taxes are also collected by the regulated companies from their customers as agents for state and local governments and are recorded on a net basis with no impact on the accompanying condensed consolidated statements of income.  


2.

DERIVATIVE INSTRUMENTS (NU, Select Energy, CL&P, PSNH, Yankee Gas)


Contracts that are derivatives and do not meet the requirements to be treated as a cash flow hedge or normal purchase or normal sale are recorded at fair value with changes in fair value included in earnings.  For those contracts that meet the definition of a derivative and meet the cash flow hedge requirements, including those related to initial and ongoing documentation, the contract is recorded at fair value and the changes in the fair value of the effective portion of those contracts are recognized in accumulated other comprehensive income.  Cash flow hedges include forward interest rate swap agreements on proposed debt issuances.  When a cash flow hedge is settled, the settlement amount is recorded in accumulated other comprehensive income and is amortized into earnings over the term of the debt.  Cash flow hedges impact net income when the hedged items affect earnings, when hedge ineffectiveness is measured and recorded, or when the forecasted transaction being hedged is improbable of occurring.  Derivative contracts designated as fair value hedges and the items they are hedging are both recorded at fair value with changes in fair value of both items recognized in earnings.  Derivative contracts that meet the requirements of a normal purchase or sale, and are so designated, are recognized in revenues or expenses, as applicable, when the quantity of the contract is delivered.  


The fair value of the company's derivative contracts may not represent amounts that will be realized.  For further information on the fair value of derivative contracts, see Note 1C, "Summary of Significant Accounting Policies - Fair Value Measurements," and Note 3, "Fair Value Measurements," to the condensed consolidated financial statements.  On the accompanying condensed consolidated balance sheets at June 30, 2008 and December 31, 2007, these amounts are recorded as current or long-term derivative assets or liabilities and are summarized as follows:



12





 

 

At June 30, 2008

 

 

Assets

 

Liabilities

 

 

 

 

Current

 

Long-Term

 

Current

 

Long-Term

 

Net Totals

(Millions of Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NU Enterprises - Wholesale

 

$

22.1 

 

$

22.5 

 

$

(33.7)

 

$

(85.5)

 

$

(74.6)

Regulated Companies - Gas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Supply

 

 

0.1 

 

 

1.6 

 

 

(0.1)

 

 

 

 

1.6 

  Interest Rate Hedging

 

 

0.8 

 

 

 

 

 

 

 

 

0.8 

Regulated Companies - Electric:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Supply/Stranded Costs

 

 

154.8 

 

 

420.7 

 

 

(2.1)

 

 

(725.6)

 

 

(152.2)

NU Parent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Interest Rate Hedging

 

 

 

 

1.8 

 

 

 

 

 

 

1.8 

Totals

 

$

177.8 

 

$

446.6 

 

$

(35.9)

 

$

(811.1)

 

$

(222.6)


 

 

At December 31, 2007

 

 

Assets

 

Liabilities

 

 

 

 

Current

 

Long-Term

 

Current

 

Long-Term

 

Net Totals

(Millions of Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NU Enterprises - Wholesale

 

$

36.2 

 

$

7.2 

 

$

(64.9)

 

$

(72.5)

 

$

(94.0)

Regulated Companies - Gas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Supply

 

 

0.2 

 

 

 

 

 

 

 

 

0.2 

  Interest Rate Hedging

 

 

0.9 

 

 

 

 

 

 

 

 

0.9 

Regulated Companies - Electric:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Supply/Stranded Costs

 

 

59.8 

 

 

290.8 

 

 

(6.7)

 

 

(136.0)

 

 

207.9 

  Interest Rate Hedging

 

 

3.3 

 

 

 

 

 

 

 

 

3.3 

NU Parent:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Interest Rate Hedging

 

 

5.1 

 

 

 

 

 

 

 

 

5.1 

Totals

 

$

105.5 

 

$

298.0 

 

$

(71.6)

 

$

(208.5)

 

$

123.4 


For the regulated companies, except for existing interest rate swap agreements, offsetting regulatory assets or liabilities are recorded for the changes in fair value of their contracts, as these contracts were part of the stranded costs or are current regulated operating costs, and management believes that these costs will continue to be recovered or refunded in cost-of-service, regulated rates.


The business activities of NU Enterprises that result in the recognition of derivative assets also result in exposures to credit risk of energy marketing and trading counterparties.  At June 30, 2008, Select Energy had $44.6 million of derivative assets from wholesale activities that are exposed to counterparty credit risk, a significant portion of which is contracted with several creditworthy and rated public entities.


NU Enterprises - Wholesale:  Certain electric derivative contracts are part of NU Enterprises' remaining wholesale marketing business.  These contracts include short-term and long-term electric supply contracts and a contract to sell electricity to the New York Municipal Power Agency (NYMPA) (an agency that is comprised of municipalities) that expires in 2013.  The fair value of the contracts was determined using prices from external sources through 2011 for on-peak and off-peak periods and through 2012 for on-peak periods, except for one contract, under which a portion of the fair value is also determined from a model based on natural gas prices and a heat-rate conversion factor to electricity for off-peak periods in 2012 and for all periods in 2013.  The 2007 balances also included a full requirements contract and the related short-term supply contracts to sell electricity to a utility.  These contracts expired on May 31, 2008.  

 

Regulated Companies - Gas - Supply:  Yankee Gas's supply derivatives consist of peaking supply arrangements to serve winter load obligations and firm retail sales contracts with options to curtail delivery.  These contracts are subject to fair value accounting as these contracts are derivatives that cannot be designated as normal purchases and sales because of the optionality in the contract terms.  An offsetting regulatory liability/asset was recorded for these amounts as management believes that these costs will be refunded or recovered in rates.


Regulated Companies - Gas - Interest Rate Hedging:  Yankee Gas has a forward interest rate swap agreement to hedge the interest cash outflows associated with its planned $100 million debt issuance in September 2008.  The interest rate swap is based on a 10-year LIBOR swap rate and matches the index used for the debt issuance.  As a cash flow hedge, the fair value of the hedge is recorded as a derivative liability and derivative asset on the accompanying condensed consolidated balance sheets as of June 30, 2008 and December 31, 2007, respectively, with an offsetting amount, net of tax, included in accumulated other comprehensive income.  




13




Regulated Companies - Electric - Supply/Stranded Costs:  CL&P has contracts with two IPPs to purchase power that contain pricing provisions that are not clearly and closely related to the price of power and therefore do not qualify for the normal purchases and sales exception.  The fair values of these derivatives at June 30, 2008 included a derivative asset with a fair value of $381 million and a derivative liability with a fair value of $38.2 million.  An offsetting regulatory liability and an offsetting regulatory asset were recorded, as these contracts are part of stranded costs, and management believes that these costs will continue to be recovered or refunded in cost-of-service, regulated rates.  At December 31, 2007, the fair values of these derivatives included a derivative asset with a fair value of $311.2 million and a derivative liability with a fair value of $31.8 million.


CL&P has entered into FTR contracts and bilateral basis swaps to limit the congestion costs associated with its standard offer contracts.  An offsetting regulatory asset or liability has been recorded as management believes that these costs will be recovered or refunded in rates.  At June 30, 2008, the fair value of these contracts was recorded as a derivative asset of $3.2 million on the accompanying condensed consolidated balance sheets.  At December 31, 2007, the fair value of these contracts was recorded as a derivative asset of $1.4 million and a derivative liability of $1.3 million on the accompanying condensed consolidated balance sheets.  


Pursuant to Public Act 05-01, "An Act Concerning Energy Independence," in August 2007, the Connecticut Department of Public Utility Control (DPUC) approved two CL&P contracts associated with the capacity of two generating projects to be built or modified.  The DPUC also approved two capacity-related contracts entered into by The United Illuminating Company (UI), one with a generating project to be built and one with a new demand response project.  The total capacity of these four projects is expected to be approximately 787 megawatts (MW).  The contracts, referred to as CfDs, obligate the utilities' customers to pay the difference between a set capacity price and the forward capacity market price that the projects receive in the New England Independent System Operator (ISO-NE) capacity markets for periods of up to 15 years beginning in 2009.  As directed by the DPUC, CL&P has an agreement with UI under which it will share the costs and benefits of these four CfDs, with 80 percent to CL&P and 20 percent to UI.  The ultimate cost to CL&P under the contracts will depend on the capacity prices that the projects receive in the ISO-NE capacity markets.  At June 30, 2008, the fair value of the CL&P CfDs was recorded as a derivative liability of $689.5 million.  The fair values of UI's share of the CL&P's contracts and CL&P's share of UI's contracts were recorded as a derivative asset of $98.6 million.  An offsetting regulatory asset of $590.9 million was recorded, as management believes these amounts will be recovered from or refunded to customers in cost-of-service, regulated rates.  The value of CL&P's CfDs at June 30, 2008 included approximately $100 million of initial gains and losses, previously deferred due to the use of significant unobservable inputs in the valuation, that were recorded upon adoption of SFAS No. 157 on January 1, 2008.  At December 31, 2007, changes in CfD fair values since inception were recorded as a derivative liability of $107.1 million, and UI's share and one CL&P CfD were recorded as derivative assets of $20.8 million.  Offsetting regulatory assets of $86.7 million and regulatory liabilities of $0.4 million were also recorded at December 31, 2007.  A 2007 NRG Energy, Inc. (NRG) appeal of the DPUC's decision selecting the CfDs was taken into consideration in valuing the CfDs as of December 31, 2007, reducing the net negative derivative values by approximately $215 million.  In February 2008, the appeal was denied, which increased derivative liabilities in 2008.


PSNH has electricity procurement contracts that are derivatives.  The fair values of these contracts are calculated based on market prices and were recorded as derivative assets totaling $51.8 million at June 30, 2008.  At December 31, 2007, the fair value was recorded as a derivative asset of $1.5 million and a derivative liability of $2.5 million.  An offsetting regulatory liability/asset was recorded as management believes that these costs will be refunded or recovered in rates as the energy is delivered.


PSNH has a contract to assign its transmission rights in a direct current transmission line in exchange for two energy call options which expire in 2010.  These energy call options are derivatives that do not qualify for the normal purchases and sales exception and are accounted for at fair value based on market prices.  At June 30, 2008 and December 31, 2007, the options were recorded as a derivative asset of $40.9 million and $15.7 million, respectively.  An offsetting regulatory liability was recorded, as the benefit of this arrangement will be refunded to customers in rates.    


Regulated Companies - Electric - Interest Rate Hedging:  At December 31, 2007, CL&P had two forward interest rate swap agreements to hedge the interest cash outflows associated with its debt issuance of $300 million in May 2008.  PSNH had a forward interest rate swap agreement to hedge the interest cash outflows associated with its debt issuance of $110 million in May 2008.  Prior to termination in May 2008, the interest rate swaps were based on a 10-year LIBOR swap rate and matched the index used for the debt issuances.  As cash flow hedges, the fair values of these hedges were recorded as derivative assets at December 31, 2007 on the accompanying condensed consolidated balance sheet with an offsetting amount, net of tax, included in accumulated other comprehensive income.


NU Parent - Interest Rate Hedging:   In March 2003, to manage the interest rate characteristics of the company's long-term debt, NU parent entered into a fixed to floating interest rate swap on its $263 million, 7.25 percent fixed rate senior notes that mature on April 1, 2012.  Under fair value hedge accounting, the changes in fair value of the swap and the interest component of the hedged long-term debt instrument are recorded in interest expense, which generally offset each other in the condensed consolidated statements of income.  The cumulative change in the fair value of the swap and the long-term debt was recorded as a derivative asset and an increase to long-term debt of $1.8 million and $4.2 million at June 30, 2008 and December 31, 2007, respectively.  



14





NU parent had a forward interest rate swap agreement to hedge the interest cash outflows associated with its planned debt issuance in June 2008.  Prior to termination in June 2008, the interest rate swap was based on a 5-year LIBOR swap rate and a notional amount of $200 million, and matched the index used for the debt issuance.  As a cash flow hedge at December 31, 2007, the fair value of the hedge was recorded as a $0.9 million derivative asset on the accompanying condensed consolidated balance sheet with an offsetting amount, net of tax, included in accumulated other comprehensive income.


3.

FAIR VALUE MEASUREMENTS (All Companies)


Items Measured at Fair Value on a Recurring Basis:  The company's assets and liabilities recorded at fair value on a recurring basis have been categorized based upon the fair value hierarchy in accordance with SFAS No. 157.  See Note 1C, "Summary of Significant Accounting Policies - Fair Value Measurements," for further information regarding the hierarchy and fair value measurements.


The following table presents the amounts of assets and liabilities carried at fair value at June 30, 2008 by the level in which they are classified within the SFAS No. 157 valuation hierarchy:



(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

WMECO

 

NU
Enterprises

 

Yankee Gas

 

NU Parent

Derivative Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

 

$

 

$

 

$

 

$

 

$

 

$

  Level 2

 

 

54.4 

 

 

 

 

51.8 

 

 

 

 

 

 

0.8 

 

 

1.8 

  Level 3

 

 

570.0 

 

 

482.8 

 

 

40.9 

 

 

 

 

44.6 

 

 

1.7 

 

 

Total

 

$

624.4 

 

$

482.8 

 

$

92.7 

 

$

 

$

44.6 

 

$

2.5 

 

$

1.8 

Derivative Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

 

$

 

$

 

$

 

$

 

$

 

$

  Level 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 3

 

 

(847.0)

 

 

(727.7)

 

 

 

 

 

 

(119.2)

 

 

(0.1)

 

 

Total

 

$

(847.0)

 

$

(727.7)

 

$

 

$

 

$

(119.2)

 

$

(0.1)

 

$

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

43.5 

 

$

 

$

 

$

6.6 

 

$

 

$

 

$

36.9 

  Level 2

 

 

77.6 

 

 

 

 

 

 

50.1 

 

 

 

 

 

 

27.5 

  Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

121.1 

 

$

 

$

 

$

56.7 

 

$

 

$

 

$

64.4 


The following tables present changes for the three and six months ended June 30, 2008 in the Level 3 category of assets and liabilities measured at fair value on a recurring basis.  This category includes derivative assets and liabilities, which are presented net.  The derivative amounts at January 1, 2008 reflect the fair values after initial adoption of SFAS No. 157.  The company classifies assets and liabilities in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model.  In addition to these unobservable inputs, the valuation models for Level 3 assets and liabilities typically also rely on a number of inputs that are observable either directly or indirectly.  Thus, the gains and losses presented below include changes in fair value that are attributable to both observable and unobservable inputs.  There were no transfers into or out of Level 3 assets and liabilities for the three and six months ended June 30, 2008.


 

 

For the Three Months Ended June 30, 2008


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

NU
Enterprises

 

Yankee
Gas

Derivatives, Net:

 

 

 

 

 

 

 

 

 

 

Fair value at March 31, 2008

 

$

(488.5)

 

$

(430.3)

 

$

22.8 

 

$

(81.1)

 

$

0.1 

Net realized/unrealized
  gains included in:  

 

 


 

 

 


 

 

 


 

 

 

 

 

 

 

    Earnings (1)

 

 

1.2 

 

 

 

 

 

 

1.2 

 

 

    Regulatory assets/liabilities

 

 

228.7 

 

 

209.1 

 

 

18.1 

 

 

 

 

1.5 

Purchases, issuances and
  settlements

 

 


(18.4)

 

 


(23.7)

 

 


 

 


5.3 

 

 


Fair value at June 30, 2008

 

$

(277.0)

 

$

(244.9)

 

$

40.9 

 

$

(74.6)

 

$

1.6 

Quarterly change in unrealized losses
  included in earnings relating to items
 held at June 30, 2008

 



$

(2.3)

 



$

 



$

 



$

                (2.3)

 



$




15






 

 

For the Six Months Ended June 30, 2008


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

NU
Enterprises

 

Yankee
Gas

Derivatives, Net:

 

 

 

 

 

 

 

 

 

 

Fair value at January 1, 2008 (2)

 

$

(511.1)

 

$

(426.9)

 

$

15.7 

 

$

(100.1)

 

$

0.2 

Net realized/unrealized
  gains included in:  

 

 


 

 

 


 

 

 


 

 

 

 

 

 

 

    Earnings (1)

 

 

4.8 

 

 

 

 

 

 

4.8 

 

 

    Regulatory assets/liabilities

 

 

245.5 

 

 

218.9 

 

 

25.2 

 

 

 

 

1.4 

Purchases, issuances and
  settlements

 

 


(16.2)

 

 


(36.9)

 

 


 

 


20.7 

 

 


Fair value at June 30, 2008

 

$

(277.0)

 

$

(244.9)

 

$

40.9 

 

$

(74.6)

 

$

1.6 

Period change in unrealized losses
 included in earnings relating to
  items held at June 30, 2008

 



$

(1.5)

 



$

 



$

 



$

(1.5)

 



$


(1)

Realized and unrealized gains and losses on derivatives included in earnings relate to the remaining Select Energy wholesale marketing contracts and are reported in fuel, purchased and net interchange power on the accompanying condensed consolidated statements of income.  


(2)

Amounts as of January 1, 2008 reflect fair values after initial adoption of SFAS No. 157.  As a result of implementing SFAS No. 157, the company recorded an increase to derivative liabilities and a pre-tax charge to earnings of $6.1 million as of January 1, 2008 related to NU Enterprises' remaining derivative contracts.  The company also recorded changes in fair value of CL&P's CfD and IPP contracts, resulting in increases to CL&P's derivative liabilities of approximately $590 million, with an offset to regulatory assets and a decrease to CL&P's derivative assets of approximately $30 million with an offset to regulatory liabilities.  


4.

PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (All Companies)


NU's subsidiaries participate in a uniform noncontributory defined benefit retirement plan (Pension Plan) covering substantially all regular NU employees and also provide certain health care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees (post-retirement benefits other than pension (PBOP) Plan).  In addition, NU maintains a Supplemental Executive Retirement Plan (SERP) which provides benefits to eligible participants, who are officers of NU, that would have been provided to them under the Pension Plan if certain Internal Revenue Code and other limitations were not imposed.  


The components of net periodic expense/(income) for the Pension Plan, PBOP Plan and SERP for the three and six months ended June 30, 2008 and 2007 are as follows:


NU

 

For the Three Months Ended June 30,

 

 

Pension Benefits

 

Postretirement Benefits

 

SERP Benefits

(Millions of Dollars)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

Service cost

 

$

11.1 

 

$

12.5 

 

$

1.8 

 

$

2.1 

 

$

0.2 

 

$

0.2 

Interest cost

 

 

35.9 

 

 

35.5 

 

 

7.0 

 

 

6.6 

 

 

0.5 

 

 

0.5 

Expected return on plan assets

 

 

(50.0)

 

 

(51.2)

 

 

(5.3)

 

 

(4.5)

 

 

 

 

Amortization of unrecognized net
  transition obligation

 

 


 

 


0.1 

 

 


2.9 

 

 


2.9 

 

 


 

 


0.2 

Amortization of prior service cost

 

 

2.5 

 

 

2.3 

 

 

(0.1)

 

 

(0.1)

 

 

 

 

Amortization of actuarial loss

 

 

1.1 

 

 

5.0 

 

 

2.7 

 

 

2.9 

 

 

0.1 

 

 

Net periodic expense

 

$

0.6 

 

$

4.2 

 

$

9.0 

 

$

9.9 

 

$

0.8 

 

$

0.9 




16





NU

 

For the Six Months Ended June 30,

 

 

Pension Benefits

 

Postretirement Benefits

 

SERP Benefits

(Millions of Dollars)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

Service cost

 

$

21.8 

 

$

24.3 

 

$

3.6 

 

$

4.2 

 

$

0.3 

 

$

0.4 

Interest cost

 

 

72.1 

 

 

69.1 

 

 

14.1 

 

 

13.3 

 

 

1.0 

 

 

1.0 

Expected return on plan assets

 

 

(100.1)

 

 

(98.4)

 

 

(10.5)

 

 

(9.1)

 

 

 

 

Amortization of unrecognized net
  transition obligation

 

 


0.1 

 

 


0.1 

 

 


5.8 

 

 


5.8 

 

 


 

 


Amortization of prior service cost

 

 

4.9 

 

 

3.9 

 

 

(0.2)

 

 

(0.1)

 

 

0.1 

 

 

0.3 

Amortization of actuarial loss

 

 

2.5 

 

 

11.8 

 

 

5.3 

 

 

5.8 

 

 

0.1 

 

 

0.1 

Net periodic expense

 

$

1.3 

 

$

10.8 

 

$

18.1 

 

$

19.9 

 

$

1.5 

 

$

1.8 


A portion of these pension amounts is capitalized related to current employees that are working on capital projects.  Amounts capitalized were approximately $1.3 million and $2.7 million for the three and six months ended June 30, 2008, respectively, and $(0.2) million and $0.4 million for the three and six months ended June 30, 2007, respectively.  The amounts for the three and six months ended June 30, 2008 offset capital costs, as pension income was recorded for certain of NU’s subsidiaries.


CL&P

 

For the Three Months Ended June 30,

 

 

Pension Benefits

 

Postretirement Benefits

 

SERP Benefits

(Millions of Dollars)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

Service cost

 

$

3.9 

 

$

4.5 

 

$

0.6 

 

$

0.7 

 

$

 

$

Interest cost

 

 

12.8 

 

 

12.4 

 

 

2.8 

 

 

2.6 

 

 

0.1 

 

 

0.1 

Expected return on plan assets

 

 

(23.4)

 

 

(23.6)

 

 

(2.1)

 

 

(1.8)

 

 

 

 

Amortization of unrecognized net
  transition obligation

 

 


 

 


 

 


1.5 

 

 


1.6 

 

 


 

 

Amortization of prior service cost

 

 

1.1 

 

 

1.0 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

0.3 

 

 

1.4 

 

 

1.1 

 

 

1.1 

 

 

 

 

Net periodic (income)/expense

 

$

(5.3)

 

$

(4.3)

 

$

3.9 

 

$

4.2 

 

$

0.1 

 

$

0.1 


CL&P

 

For the Six Months Ended June 30,

 

 

Pension Benefits

 

Postretirement Benefits

 

SERP Benefits

(Millions of Dollars)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

Service cost

 

$

7.6 

 

$

8.4 

 

$

1.1 

 

$

1.4 

 

$

 

$

Interest cost

 

 

25.7 

 

 

24.7 

 

 

5.7 

 

 

5.3 

 

 

0.1 

 

 

0.1 

Expected return on plan assets

 

 

(46.7)

 

 

(45.7)

 

 

(4.2)

 

 

(3.6)

 

 

 

 

Amortization of unrecognized net
  transition obligation

 

 


 

 


 

 


3.1 

 

 


3.1 

 

 


 

 


Amortization of prior service cost

 

 

2.1 

 

 

1.7 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

0.6 

 

 

3.9 

 

 

2.2 

 

 

2.2 

 

 

0.1 

 

 

0.1 

Net periodic (income)/expense

 

$

(10.7)

 

$

(7.0)

 

$

7.9 

 

$

8.4 

 

$

0.2 

 

$

0.2 


Not included in the pension income amounts above are related intercompany allocations totaling $1.9 million and $4 million for the three and six months ended June 30, 2008, respectively, and $2.9 million and $6 million for the three and six months ended June 30, 2007, respectively.  Excluded from postretirement benefits are related intercompany allocations of $1.7 million and $3.4 million for the three and six months ended June 30, 2008, respectively, and $1.8 million and $3.6 million for the three and six months ended June 30, 2007, respectively.  Excluded from SERP expenses are related intercompany allocations of $0.4 million and $0.8 million for the three and six months ended June 30, 2008, respectively, and $0.5 million and $1.0 million for the three and six months ended June 30, 2007, respectively.  


For CL&P, a portion of the pension amounts, including intercompany allocations, is capitalized related to current employees that are working on capital projects.  Amounts capitalized were $2.2 million and $4.4 million for the three and six months ended June 30, 2008, respectively, and $1.3 million and $1.9 million for the three and six months ended June 30, 2007, respectively.  These amounts offset capital costs, as pension income was recorded for those periods.



17





PSNH

 

For the Three Months Ended June 30,

 

 

Pension Benefits

 

Postretirement Benefits

 

SERP Benefits

(Millions of Dollars)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

Service cost

 

$

2.3 

 

$

2.4 

 

$

0.4 

 

$

0.5 

 

$

 

$

Interest cost

 

 

5.8 

 

 

5.7 

 

 

1.3 

 

 

1.2 

 

 

 

 

Expected return on plan assets

 

 

(4.5)

 

 

(4.7)

 

 

(1.0)

 

 

(0.8)

 

 

 

 

Amortization of unrecognized net
  transition obligation

 

 


 

 


0.1 

 

 


0.6 

 

 


0.6 

 

 


 

 



Amortization of prior service cost

 

 

0.5 

 

 

0.5 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

0.4 

 

 

1.0 

 

 

0.5 

 

 

0.5 

 

 

0.1 

 

 

0.1 

Net periodic expense

 

$

4.5 

 

$

5.0 

 

$

1.8 

 

$

2.0 

 

$

0.1 

 

$

0.1 


PSNH

 

For the Six Months Ended June 30,

 

 

Pension Benefits

 

Postretirement Benefits

 

SERP Benefits

(Millions of Dollars)

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

Service cost

 

$

4.5 

 

$

5.0 

 

$

0.8 

 

$

0.9 

 

$

 

$

Interest cost

 

 

11.6 

 

 

11.0 

 

 

2.6 

 

 

2.5 

 

 

 

 

0.1 

Expected return on plan assets

 

 

(9.0)

 

 

(9.0)

 

 

(2.0)

 

 

(1.7)

 

 

 

 

Amortization of unrecognized net
  transition obligation

 

 


0.2 

 

 


0.1 

 

 


1.2 

 

 


1.2 

 

 


 

 

Amortization of prior service cost

 

 

0.9 

 

 

0.8 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

0.8 

 

 

2.2 

 

 

0.9 

 

 

1.1 

 

 

0.1 

 

 

0.1 

Net periodic expense

 

$

9.0 

 

$

10.1 

 

$

3.5 

 

$

4.0 

 

$

0.1 

 

$

0.2 


Not included in the pension expense amounts above are related intercompany allocations totaling $0.4 million and $0.8 million for the three and six months ended June 30, 2008, respectively, and $0.5 million and $1 million for the three and six months ended June 30, 2007, respectively.  Excluded from postretirement benefits are related intercompany allocations of $0.4 million and $0.7 million for the three and six months ended June 30, 2008, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2007, respectively.  Excluded from SERP expenses are related intercompany allocations of $0.1 million and $0.2 million for the three and six months ended June 30, 2008 and 2007, respectively.  


For PSNH, a portion of these pension amounts, including intercompany allocations, is capitalized related to current employees that are working on capital projects.  Amounts capitalized were $1.2 million and $2.3 million for the three and six months ended June 30, 2008, respectively, and $1.2 million and $2.5 million for the three and six months ended June 30, 2007, respectively.


WMECO

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

Pension Benefits

 

Postretirement Benefits

 

Pension Benefits

 

Postretirement Benefits

 

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

(Millions of Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

0.8 

 

$

1.0 

 

$

0.1 

 

$

0.2 

 

$

1.6 

 

$

1.7 

 

$

0.2 

 

$

0.3 

Interest cost

 

 

2.6 

 

 

2.5 

 

 

0.6 

 

 

0.6 

 

 

5.2 

 

 

5.0 

 

 

1.2 

 

 

1.1 

Expected return on plan assets

 

 

(5.1)

 

 

(5.2)

 

 

(0.5)

 

 

(0.5)

 

 

(10.4)

 

 

(10.1)

 

 

(1.0)

 

 

(0.9)

Amortization of unrecognized net
  transition obligation

 

 


 

 


 

 


0.4 

 

 


0.3 

 

 


 

 


 

 


0.7 

 

 


0.7 

Amortization of prior service cost

 

 

0.2 

 

 

0.2 

 

 

 

 

 

 

0.5 

 

 

0.4 

 

 

 

 

Amortization of actuarial loss

 

 

 

 

0.2 

 

 

0.1 

 

 

0.2 

 

 

0.1 

 

 

0.7 

 

 

0.3 

 

 

0.4 

Net periodic (income)/expense

 

$

(1.5)

 

$

(1.3)

 

$

0.7 

 

$

0.8 

 

$

(3.0)

 

$

(2.3)

 

$

1.4 

 

$

1.6 


A de minimis amount of SERP expense was recorded for WMECO for each of the three and six months ended June 30, 2008 and 2007.


Not included in the pension income amounts above are related intercompany allocations totaling $0.4 million and $0.7 million for the three and six months ended June 30, 2008, respectively, and $0.5 million and $1 million for the three and six months ended June 30, 2007, respectively.  Excluded from postretirement benefits are related intercompany allocations of $0.3 million and $0.5 million for the three and six months ended June 30, 2008, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2007, respectively.


For WMECO, a portion of these pension amounts, including intercompany allocations, is capitalized related to current employees that are working on capital projects.  Amounts capitalized were $0.5 million and $1.1 million for the three and six months ended June 30, 2008, respectively, and $0.5 million and $0.8 million for the three and six months ended June 30, 2007, respectively.  These amounts offset capital costs, as pension income was recorded for those periods.  




18




5.

COMMITMENTS AND CONTINGENCIES


A.

Regulatory Developments and Rate Matters (CL&P, PSNH, WMECO, Yankee Gas)


Connecticut:


CTA and SBC Reconciliation:  The Competitive Transition Assessment (CTA) allows CL&P to recover stranded costs, such as securitization costs associated with its rate reduction bonds, amortization of regulatory assets, and IPP over-market costs, while the System Benefits Charge (SBC) allows CL&P to recover certain regulatory and energy public policy costs, such as public education outreach costs, hardship protection costs, transition period property taxes, and displaced worker protection costs.


On March 31, 2008, CL&P filed with the DPUC its 2007 CTA and SBC reconciliation, which compared CTA and SBC revenues to revenue requirements.  For the 12 months ended December 31, 2007, total CTA revenues exceeded CTA revenue requirements by $26.1 million.  This amount was recorded as a decrease to the CTA regulatory asset on the accompanying condensed consolidated balance sheets.  For the 12 months ended December 31, 2007, the SBC cost of service exceeded SBC revenues by $39.4 million.  This amount was recorded as a regulatory asset on the accompanying condensed consolidated balance sheets.  Management expects a decision in this docket from the DPUC by the end of 2008 and does not expect the outcome to have a material adverse impact on CL&P's net income, financial position or cash flows.


Procurement Fee Rate Proceedings:  CL&P was allowed to collect a fixed procurement fee of 0.50 mills per kilowatt-hour (KWH) from customers that purchased transitional standard offer (TSO) service from 2004 through the end of 2006.  One mill is equal to one tenth of a cent.  That fee could increase to 0.75 mills per KWH if CL&P outperforms certain regional benchmarks.  CL&P submitted to the DPUC its proposed methodology to calculate the variable incentive portion of the procurement fee and requested approval of $5.8 million in incentive fees.  On December 8, 2005, a draft decision was issued in this docket, which accepted the methodology as proposed by CL&P and authorized payment of the pre-tax $5.8 million incentive fee.  Subsequent to this draft decision the record was re-opened for numerous inputs.  Additional hearings were held on December 10, 2007 and January 30, 2008 and the record was then closed.  A date for the new draft decision in this docket has not yet been determined by the DPUC.  Management continues to believe that final regulatory approval of the $5.8 million pre-tax amount, which was reflected in 2005 earnings, is probable.  


Purchased Gas Adjustment: In 2005 and 2006, the DPUC issued decisions regarding Yankee Gas’s Purchased Gas Adjustment (PGA) clause charges and required an audit of previously recovered PGA revenues of approximately $11 million associated with unbilled sales and revenue adjustments for the period of September 1, 2003 through August 31, 2005.  On June 11, 2008, the DPUC issued a final order requiring Yankee Gas to refund approximately $5.8 million in previous recoveries to its customers.  The $5.8 million pre-tax charge (approximately $3.5 million net of tax) was recorded in the second quarter 2008 earnings of Yankee Gas.  


New Hampshire:


ES and SCRC Reconciliation and Rates:  On an annual basis, PSNH files with the New Hampshire Public Utilities Commission (NHPUC) a default energy service charge/stranded cost recovery charge (ES/SCRC) reconciliation filing for the preceding year.  The NHPUC reviews the filing, which includes a prudence review of PSNH's generation business segment operations.  On May 1, 2008, PSNH filed its 2007 ES/SCRC reconciliation with the NHPUC.  On June 27, 2008, the NHPUC issued a procedural schedule, with hearings scheduled in November 2008.  Management does not expect the outcome of the NHPUC review to have a material adverse impact on PSNH's net income, financial position or cash flows.


Massachusetts:


Transition Cost Reconciliations:  WMECO filed its 2005 transition cost reconciliation with the Massachusetts Department of Public Utilities (DPU) on March 31, 2006 and filed its 2006 transition cost reconciliation with the DPU on March 31, 2007.  The DPU opened a proceeding for these filings, and evidentiary hearings were held on August 29, 2007.  The briefing process was completed during October 2007.  On June 20, 2008, the DPU issued its final decision on these filings, which resulted in a pre-tax charge of $1.6 million to WMECO’s condensed consolidated statements of income for the three and six months ended June 30, 2008.  The DPU ordered WMECO to use a return on equity of 11 percent, and not the allowed return on equity of 9.85 percent in 2005 and 2006, for purposes of calculating carrying cost credits for customers on the stranded cost deferrals.  In addition, the DPU ordered WMECO not to combine certain overrecoveries and underrecoveries but instead, to keep them separate and to calculate carrying costs on certain balances using a return on equity of 11 percent and to use customer deposit rates on other balances.  The impacts of this order on WMECO's calculations of the 2007 and year to date 2008 transition cost reconciliations were recorded in the second quarter of 2008.  


On July 18, 2008, WMECO filed its 2007 transition cost reconciliation with the DPU.  The schedule for reviewing this filing will be set by the DPU at a later date.  Management does not expect the outcome of the DPU's review of this filing to have a material adverse effect on WMECO's net income, financial position or cash flows.   



19




 

B.

Long-Term Contractual Arrangements (CL&P, Select Energy)


Estimated Future Annual CL&P Costs:  The estimated future annual costs of CL&P’s renewable energy contract arrangements, updated as of June 30, 2008, are as follows:  


(Millions of Dollars)

 

2008

 

2009

 

2010

 

2011

 

2012

 

Thereafter

 

Total

Renewable energy
  contracts

 


$


1.2 

 


$


18.0 

 


$


30.5 

 


$


71.9 

 


$


101.1 

 


$


1,558.9 

 


$


1,781.6 


CL&P has entered into various agreements to purchase energy, capacity and renewable energy credits from renewable energy facilities.  Amounts payable under these contracts are subject to a sharing agreement with UI, whereby UI will share 20 percent of the costs and benefits of these contracts.  In addition, UI has entered into a contract that is subject to this cost sharing agreement under which CL&P will share in approximately 80 percent of the costs and benefits of the contract.  The information in the table above includes 100 percent of the payments projected under the contracts entered into by CL&P and 80 percent of the payments projected under the contract entered into by UI.  CL&P’s portion of the costs and benefits of these contracts will be paid by or refunded to CL&P’s customers.


Estimated Future Annual NU Enterprises Costs:  The estimated future annual costs of NU Enterprises' significant contractual arrangements, updated as of June 30, 2008, are as follows:  


(Millions of Dollars)

 

2008

 

2009

 

2010

 

2011

 

2012

 

Thereafter

 

Total

Select Energy purchase
 agreements

 


$


30.0 

 


$


36.0 

 


$


38.4 

 


$


42.9 

 


$


38.8 

 


$


44.7 

 


$


230.8 


Select Energy Purchase Agreements:  Select Energy maintains long-term agreements to purchase energy as part of its portfolio of resources to meet its actual or expected sales commitments.  Most purchase commitments are recorded at their mark-to-market value with the exception of one non-derivative contract which is accounted for on the accrual basis.  


Select Energy's purchase commitment amounts are reported on a net basis in fuel, purchased and net interchange power along with certain sales contracts and mark-to-market amounts.  Therefore, the amount included in fuel, purchased and net interchange power will be less than the amounts included in the table above.  Select Energy also maintains certain energy commitments for which mark-to-market values have been recorded on the condensed consolidated balance sheets as derivative assets and liabilities.  These contracts are included in the table above.  


C.

Environmental Matters (HWP)


HWP is a subsidiary of NU that owns a minimal amount of transmission property and has limited operating activities.  HWP continues to evaluate additional potential remediation requirements at a river site in Massachusetts containing tar deposits associated with a manufactured gas plant which it sold to Holyoke Gas and Electric (HG&E), a municipal electric utility, in 1902.  HWP is at least partially responsible for this site, and has already conducted substantial remediation activities.  HWP first established a reserve for this site in 1994.  A pre-tax charge of approximately $3 million was recorded in the second quarter of 2008 to reflect the estimated cost of further tar delineation and site characterization studies, as well as certain remediation costs that are considered to be probable and estimable as of June 30, 2008.  The cumulative expense recorded to this reserve through June 30, 2008 was approximately $15.9 million, of which $12.6 million had been spent, leaving approximately $3.3 million in the reserve as of June 30, 2008.  


The Massachusetts Department of Environmental Protection (MA DEP) issued a letter on April 3, 2008 to HWP and HG&E, which shares responsibility for the site, providing conditional authorization for additional investigatory and risk characterization activities and providing detailed comments on HWP’s 2007 reports and proposals for further investigations.  MA DEP also indicated that further removal of tar in certain areas was necessary prior to commencing many of the additional studies and evaluation.  This letter represents guidance from the MA DEP, rather than mandates.  HWP is developing plans for additional investigations to accord with MA DEP’s guidance letter, including estimated costs and schedules.  These matters are subject to ongoing discussions with MA DEP and HG&E and may change from time to time.


At this time, management believes that the $3.3 million remaining in the reserve is at the low end of a range of probable and estimable costs of approximately $3.3 million to $4 million and will be sufficient for HWP to conduct the additional tar delineation and site characterization studies, evaluate its approach to this matter and conduct certain soft tar remediation.  The additional studies are expected to occur through 2008 and 2009, and possibly into 2010.


There are many outcomes that could affect management's estimates and require an increase to the reserve, or range of costs, and a reserve increase would be reflected as a charge to pre-tax earnings.  However, management cannot reasonably estimate the range of



20




additional investigation and remediation costs because they will depend on, among other things, the level and extent of the remaining tar that may be required to be remediated, the extent of HWP’s responsibility and the related scope and timing, all of which are difficult to estimate because of a number of uncertainties at this time.  As of June 30, 2008, HWP had $3.3 million remaining in the reserve related to this matter, and further developments may require a material increase to this reserve.


HWP's share of the remediation costs related to this site is not recoverable from customers.  


D.

Guarantees and Indemnifications (All Companies)


NU provides credit assurances on behalf of subsidiaries in the form of guarantees and letters of credit (LOCs) in the normal course of business.  NU has also provided guarantees and various indemnifications on behalf of external parties as a result of the sales of Select Energy Services, Inc. (SESI), NU Enterprises' retail marketing business and its competitive generation business.  The following table summarizes NU's maximum exposure at June 30, 2008, in accordance with FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," expiration dates, and fair value of amounts recorded.  





Company

 




Description

 


Maximum
Exposure
(in millions)

 

 



Expiration
Date(s)

 

Fair Value
of Amounts
Recorded
(in millions)

On behalf of external parties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SESI

 

General indemnifications in connection with the sale of SESI including completeness and accuracy of information provided, compliance with laws, and various claims

 

Not Specified 

(1)

 

None

 

$  -

 

 

 

 

 

 

 

 

 

 

 

 

Specific indemnifications in connection with the sale of SESI for estimated costs to complete or modify specific projects

 

Not Specified 

(1)

 

Through project completion

 

$0.2

 

 

 

 

 

 

 

 

 

 

 

 

Indemnifications to lenders for payment of shortfalls in the event of early termination of government contracts

 

$1.7 

 

 

2017-2018

 

$0.1

 

 

 

 

 

 

 

 

 

 

 

 

Surety bonds covering certain projects

 

$10.5 

 

 

Through project
completion

 

$  -

 

 

 

 

 

 

 

 

 

 

Hess Corporation (Retail Marketing Business)

 

General indemnifications in connection with the sale including compliance with laws, completeness and accuracy of information provided, and various claims

 

Not Specified 

(1)

 

None

 

$  -

 

 

 

 

 

 

 

 

 

 

Energy Capital Partners (Competitive Generation Business)

 

General indemnifications in connection with the sale of NGC and the generating assets of Mt. Tom including compliance with tax and environmental laws, and various claims

 

Not Specified 

(1)

 

2008-2009

 

$  -

 

 

 

 

 

 

 

 

 

 

On behalf of subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulated Companies

 

Surety bonds, primarily for self-insurance

 

$13.6 

 

 

None

 

N/A

 

 

Letters of credit

 

$12.0 

 

 

2009

 

N/A

 

 

 

 

 

 

 

 

 

 

Rocky River Realty Company

 

Lease payments for real estate

 

$11.2 

 

 

2024

 

N/A

 

 

 

 

 

 

 

 

 

 

NUSCO

 

Lease payments for fleet of vehicles

 

$9.3 

 

 

None

 

N/A

 

 

Letters of credit

 

$6.0 

 

 

2009

 

N/A

 

 

 

 

 

 

 

 

 

 

E.S. Boulos Company (Boulos)

 

Surety bonds covering ongoing projects

 

$73.3 

 

 

Through project
completion

 

N/A

 

 

 

 

 

 

 

 

 

 

NGS

 

Performance guarantee and insurance bonds

 

$22.1 

(2)

 

2020 (2)

 

N/A

 

 

 

 

 

 

 

 

 

 

Select Energy

 

Performance guarantees and surety bonds for retail marketing contracts

 

$5.0 

(3)

 

None (4)

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

Performance guarantees for wholesale contracts

 

$26.7 

(3)

 

2013

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

Letters of credit

 

$2.0 

 

 

2009

 

N/A




21




(1)

There is no specified maximum exposure included in the related sale agreements.  


(2)

Included in the maximum exposure is $20.9 million related to a performance guarantee of Northeast Generation Services Company (NGS) obligations for which there is no specified maximum exposure in the agreement.  The maximum exposure is calculated based on limits on 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 which are billed annually on their anniversary date.  


(3)

Maximum exposure is as of June 30, 2008; however, exposures vary with underlying commodity prices and for certain contracts are essentially unlimited.  


(4)

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 provisions that would require NU to post collateral in the event that NU's credit ratings are downgraded below investment grade.  


In July 2006, under a guarantee of SESI obligations, NU purchased the right to receive contract payments relating to a SESI project that was financed and behind schedule.  The carrying value of these assets was $8.8 million at June 30, 2008 and is included in other deferred debits on the accompanying condensed consolidated balance sheets.  This carrying amount represents the net realizable value of the asset, which is subject to change through SESI's completion of the project.  NU may record additional losses associated with this transaction, the amount of which will depend on the amount of project cash available to offset NU's costs and other factors.  


6.

COMPREHENSIVE INCOME (NU, CL&P, PSNH, WMECO, NU Enterprises, Yankee Gas)


Total comprehensive income, which includes all comprehensive income/(loss) items, net of tax and by category, for the three and six months ended June 30, 2008 and 2007 is as follows:


 

 

Three Months Ended June 30, 2008


(Millions of Dollars)

 


NU*

 


CL&P

 


PSNH

 


WMECO

 

NU
Enterprises

 

Yankee
Gas

 


Other

Net income/(loss)

 

$

57.8 

 

$

44.8 

 

$

13.7 

 

$

3.3 

 

$

2.2 

 

$

(1.0)

 

$

(5.2)

Comprehensive income/(loss) items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Qualified cash flow hedging instruments

 

 

12.9 

 

 

4.9 

 

 

1.7 

 

 

 

 

 

 

2.5 

 

 

3.8 

  (Decreases)/increases in unrealized
   gains on securities

 

 

(0.1)

 

 

 

 

 

 

(0.2)

 

 

 

 

 

 

0.1 

  Pension, SERP, and other
    postretirement benefits

 

 


0.9 

 

 


 

 


 

 


 

 


0.7 

 

 


 

 


0.2 

Net change in comprehensive
   income/(loss) items

 

 


13.7 

 

 


4.9 

 

 


1.7 

 

 


(0.2)

 

 


0.7 

 

 


2.5 

 

 


4.1 

Total comprehensive income/(loss)

 

$

71.5 

 

$

49.7 

 

$

15.4 

 

$

3.1 

 

$

2.9 

 

$

1.5 

 

$

(1.1)


 

 

Three Months Ended June 30, 2007


(Millions of Dollars)

 


NU*

 


CL&P

 


PSNH

 


WMECO

 

NU
Enterprises

 

Yankee
Gas

 


Other

Net income

 

$

48.5 

 

$

24.4 

 

$

15.2 

 

$

4.6 

 

$

2.5 

 

$

0.3 

 

$

1.5 

Comprehensive income items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Increase in unrealized gains on securities

 

 

1.2 

 

 

 

 

0.1 

 

 

 

 

 

 

 

 

1.1 

  Pension, SERP, and other
    postretirement benefits

 

 


5.8 

 

 


 

 


 

 


 

 


3.6 

 

 


 

 


2.2 

Net change in comprehensive
   income items

 

 


7.0 

 

 


 

 


0.1 

 

 


 

 


3.6 

 

 


 

 


3.3 

Total comprehensive income

 

$

55.5 

 

$

24.4 

 

$

15.3 

 

$

4.6 

 

$

6.1 

 

$

0.3 

 

$

4.8 


 

 

Six Months Ended June 30, 2008


(Millions of Dollars)

 


NU*

 


CL&P

 


PSNH

 


WMECO

 

NU
Enterprises

 

Yankee
Gas

 


Other

Net income

 

$

116.2 

 

$

89.5 

 

$

30.4 

 

$

9.6 

 

$

4.1 

 

$

17.6

 

$

(35.0)

Comprehensive (loss)/income items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Qualified cash flow hedging instruments

 

 

(5.8)

 

 

(3.6)

 

 

(1.5)

 

 

 

 

 

 

 

 

(0.7)

  Decrease in unrealized gains on securities

 

 

(0.8)

 

 

 

 

 

 

(0.1)

 

 

 

 

 

 

(0.7)

  Pension, SERP, and other
    postretirement benefits

 

 


2.1 

 

 


 

 


 

 


 

 


1.0 

 

 


 

 


1.1 

Net change in comprehensive
   (loss)/income items

 

 


(4.5)

 

 


(3.6)

 

 


(1.5)

 

 


(0.1)

 

 


1.0 

 

 


 

 


(0.3)

Total comprehensive income/(loss)

 

$

111.7 

 

$

85.9 

 

$

28.9 

 

$

9.5 

 

$

5.1 

 

$

17.6 

 

$

(35.3)




22





 

 

Six Months Ended June 30, 2007


(Millions of Dollars)

 


NU*

 


CL&P

 


PSNH

 


WMECO

 

NU
Enterprises

 

Yankee
Gas

 


Other

Net income

 

$

123.6 

 

$

58.0 

 

$

25.2 

 

$

11.5 

 

$

7.4 

 

$

13.9 

 

$

7.6 

Comprehensive income/(loss) items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Qualified cash flow hedging instruments

 

 

(1.6)

 

 

(1.6)

 

 

 

 

 

 

 

 

 

 

  Increase in unrealized gains on securities

 

 

1.4 

 

 

 

 

0.1 

 

 

 

 

 

 

 

 

1.3 

  Pension, SERP, and other
    postretirement benefits

 

 


6.3 

 

 


 

 


 

 


 

 


3.9 

 

 


 

 


2.4 

Net change in comprehensive
   income/(loss) items

 

 


6.1 

 

 


(1.6)

 

 


0.1 

 

 


 

 


3.9 

 

 


 

 


3.7 

Total comprehensive income

 

$

129.7 

 

$

56.4 

 

$

25.3 

 

$

11.5 

 

$

11.3 

 

$

13.9 

 

$

11.3 


*After preferred dividends of subsidiary.


Comprehensive income amounts included in the Other column primarily relate to NU parent and Northeast Utilities Service Company (NUSCO).

  

Accumulated other comprehensive income fair value adjustments in NU's qualified cash flow hedging instruments for the six months ended June 30, 2008 and the twelve months ended December 31, 2007 are as follows:



(Millions of Dollars, Net of Tax)

 

Six Months Ended
June 30, 2008

 

Twelve Months Ended
December 31, 2007

Balance at beginning of period

 

$

2.3 

 

$

5.9 

Hedged transactions recognized into earnings

 

 

0.4 

 

 

0.2 

Change in fair value of interest rate swap agreements

 

 

(6.0)

 

 

Cash flow transactions entered into for the period

 

 

(0.2)

 

 

(3.8)

Net change associated with hedging transactions

 

 

(5.8)

 

 

(3.6)

Total fair value adjustments included in accumulated
  other comprehensive income

 


$


(3.5)

 


$


2.3 


Yankee Gas has a forward interest rate swap agreement associated with its planned September 2008 long-term debt issuance.  The fair value of the interest rate swap agreement is recorded in accumulated other comprehensive income with a corresponding pre-tax amount recorded as a derivative asset/liability.  For the periods ended June 30, 2008 and December 31, 2007, a net of tax fair value benefit of $0.5 million was recorded in accumulated other comprehensive income.  For further information, see Note 2, "Derivative Instruments," to the accompanying condensed consolidated financial statements.


In March 2008, PSNH terminated an interest rate swap agreement and recorded a $2.4 million net of tax settlement charge, net of hedge ineffectiveness of $0.2 million, in accumulated other comprehensive income.


The following table provides the forward starting interest rate swap transactions entered into by the company, CL&P and PSNH to hedge interest rate risk associated with their respective long-term debt issuances and terminated in May and June, 2008:


 

 

NU Parent

 

CL&P

 

PSNH

Long-term debt issued (in millions)

 

$

250.0 

 

$

300.0 

 

$

110.0 

 

Date issued

 

 

June 5, 2008 

 

 

May 27, 2008

 

 

May 27, 2008

 

Term

 

 

5-year 

 

 

10-year 

 

 

10-year 

 

Loaded LIBOR swap percentage rate(s) (percentage)

 

 

4.102 

(1)

 

4.590 and 4.602 

(2)

 

4.5575 

(3)

Charge/(reduction) to accumulated other
  comprehensive income (net of tax) (4)

 

 


0.1 

 

 


2.3 

 

 


(1.5)

 


(1)

The interest rate swap was entered into with a notional amount of $200 million.  


(2)

The two locked rates reflect two forward starting interest rate swap transactions, each with a notional amount of $150 million.


(3)

The first swap transaction was entered into in December 2007 and was replaced at its scheduled termination date in March 2008 with a new swap to extend the hedging relationship to the revised pricing date of the long-term debt in May 2008.  


(4)

The charge to accumulated other comprehensive income will be amortized into earnings over the terms of each respective long-term debt.




23




It is estimated that a charge of $0.1 million will be reclassified from accumulated other comprehensive income as a decrease to earnings over the next 12 months as a result of amortization of amounts due to forward interest rate swap agreements that have been settled.  Assuming the fair value of the existing forward interest rate swap agreement remains unchanged from June 30, 2008 to its planned settlement date in September 2008, it is estimated that $40 thousand will be reclassified from accumulated other comprehensive income as an increase to earnings over the next 12 months as a result of amortization of amounts due to the settlement of the forward interest rate swap agreement.  At June 30, 2008, it is estimated that a pre-tax $0.1 million included in the accumulated other comprehensive income balance will be reclassified as an increase to earnings over the next 12 months related to Pension, SERP and other postretirement benefits adjustments.  


7.

DISCONTINUED OPERATIONS (NU, NU Enterprises)


NU's condensed consolidated statements of income present NGC, Mt. Tom and SECI as discontinued operations.  Under discontinued operations presentation, revenues and expenses of the businesses classified as discontinued operations are classified in loss from discontinued operations on the condensed consolidated statements of income, for all periods presented.

 

Summarized information for the discontinued operations is as follows:


 

 

For the Three Months Ended

 

For the Six Months Ended

(Millions of Dollars)

 

June 30, 2008

 

June 30, 2007

 

June 30, 2008

 

June 30, 2007

Operating revenues

 

$

 

$

0.3 

 

$

 

$

1.1 

Operating benefits/(expenses)

 

 

 

 

0.2 

 

 

 

 

(0.9)

Income from discontinued operations

 

 

 

 

0.5 

 

 

 

 

0.2 

Gain from sale/disposition of discontinued operations

 

 

 

 

3.9 

 

 

 

 

2.0 

Income tax expense from discontinued operations

 

 

 

 

(1.9)

 

 

 

 

(1.0)

Net income from discontinued operations

 

 

 

 

2.5 

 

 

 

 

1.2 


The gain on sale/disposition of discontinued operations of $3.9 million for the three months ended June 30, 2007 was primarily due to the favorable resolution of contingencies from the completion of a cogeneration plant by SESI, which was sold in May of 2006, partially offset by charges related to the sale of the competitive generation business.  In the first quarter of 2007, a $1.9 million charge resulted from a purchase price adjustment from the sale of the competitive generation business.


No intercompany revenues were included in discontinued operations for either of the three and six months ended June 30, 2008 and 2007.  


At June 30, 2008, NU did not have and does not expect to have significant ongoing involvement or continuing cash flows with the entities presented in discontinued operations.  


8.

EARNINGS PER SHARE (NU)


Earnings per share (EPS) is computed based upon the weighted average number of common shares outstanding, excluding unallocated Employee Stock Ownership Plan (ESOP) shares, during each period.  Diluted EPS is computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect if certain securities are converted into common stock.  There were no antidilutive options for any of the three- and six-month periods ended June 30, 2008 and 2007.  


The following table sets forth the components of basic and fully diluted EPS:


 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

(Millions of Dollars, Except for Share Information)

 

2008

 

2007

 

2008

 

2007

Income from continuing operations

 

$

57.8 

 

$

46.0 

 

$

116.2 

 

$

122.4 

Income from discontinued operations

 

 

 

 

2.5 

 

 

 

 

1.2 

Net income

 

$

57.8 

 

$

48.5 

 

$

116.2 

 

$

123.6 

Basic EPS common shares outstanding (average)

 

 

155,476,492 

 

 

154,729,676 

 

 

155,381,302 

 

 

154,539,678 

Dilutive effect

 

 

418,856 

 

 

483,418 

 

 

427,179 

 

 

562,994 

Fully diluted EPS common shares
  outstanding (average)

 




155,895,348 

 

 


155,213,094 

 

 


155,808,481 

 

 


155,102,672 

Basic and Fully Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

  Income from continuing operations

 

$

0.37 

 

$

0.30 

 

$

0.75 

 

$

0.79 

  Income from discontinued operations

 

 

 

 

0.01 

 

 

 

 

0.01 

  Net income

 

$

0.37 

 

$

0.31 

 

$

0.75 

 

$

0.80 




24




Restricted share units (RSUs) are included in basic common shares outstanding when shares are both vested and issued.  The dilutive effect of RSUs granted but not issued is calculated using the treasury stock method.  Assumed proceeds of RSUs under the treasury stock method consist of the remaining compensation cost to be recognized and a theoretical tax benefit.  The theoretical tax benefit is calculated as the tax impact of the intrinsic value of the RSUs (the difference between the market value of RSUs using the average market price during the period and the grant date market value).  


The dilutive effect of stock options is also calculated using the treasury stock method.  Assumed proceeds for stock options consist of remaining compensation cost to be recognized, cash proceeds that would be received upon exercise, and a theoretical tax benefit.  The theoretical tax benefit is calculated as the tax impact of the intrinsic value of the stock options (the difference between the market value of the common shares underlying the stock options outstanding for the period using the average market price and the exercise price on the date of grant).  


Allocated ESOP shares are included in basic common shares outstanding in the above table.  


9.

LONG-TERM DEBT (NU, CL&P, PSNH)


NU parent, CL&P and PSNH issued long-term debt in the three months ended June 30, 2008.  The details of this issuance are as follows:


(Millions of Dollars)

 

 

 

Senior Notes:

 

 

 

   NU Parent:

 

 

 

      5.65% Series C due 2013

 

$

250 

First Mortgage Bonds:

 

 

 

   CL&P:

 

 

 

      5.65% 2008 Series A due 2018

 

 

300 

   PSNH:  

 

 

 

      6.00% Series O due 2018

 

 

110 

Total Long-Term Debt Issued

 

$

660 


The proceeds from the NU parent long-term debt issuance were used to repay the $150 million long-term Series B senior note with an interest rate of 3.3 percent which matured on June 1, 2008 and short-term borrowings outstanding under a credit facility.  The proceeds from the CL&P and PSNH long-term debt issuances were used to repay short-term debt, to fund each company's capital programs, and for general working capital purposes.  


These long-term debt agreements require each company to comply with certain covenants as are customarily included in such agreements.  The parties to these agreements currently are and expect to remain in compliance with these covenants.


10.

SEGMENT INFORMATION (All Companies)


Presentation: NU is organized between the regulated companies and NU Enterprises' businesses based on a combination of factors, including the characteristics of each business' products and services, the sources of operating revenues and expenses and the regulatory environment in which each segment operates.  Cash flows for total investments in plant included in the segment information below are cash capital expenditures that do not include amounts incurred but not paid, cost of removal, AFUDC and the capitalized portion of pension expense or income.  Segment information for all periods presented has been reclassified to conform to the current period presentation, except as indicated.  


The regulated companies segment, including the electric distribution, generation and transmission segments, as well as the gas distribution segment (Yankee Gas), represented approximately 99 percent of NU's total revenues for the three and six months ended June 30, 2008 as compared to 95 percent and 96 percent, respectively, for the 2007 periods.  CL&P's, PSNH's and WMECO's complete condensed consolidated financial statements are included in this combined quarterly report on Form 10-Q.  PSNH's distribution segment includes generation activities.  Also included in this combined quarterly report on Form 10-Q is detailed information regarding CL&P's, PSNH's, and WMECO's transmission segments.


At June 30, 2008, the NU Enterprises business segment included the following legal entities:  1) Select Energy (wholesale contracts), 2) NGS, 3) Boulos, and 4) NU Enterprises parent.  


Other in the segment tables primarily consists of 1) the results of NU parent, which include other income related to the equity in earnings of NU parent's subsidiaries and interest income from the NU Money Pool, which are both eliminated in consolidation, and interest income and expense related to the cash and debt of NU parent, respectively, 2) the revenues and expenses of Northeast



25




Utilities Services Company, most of which are eliminated in consolidation, and 3) the results of other subsidiaries, which include The Rocky River Realty Company and The Quinnehtuk Company (real estate subsidiaries), Mode 1 Communications, Inc. and the non-utility subsidiaries of Yankee Energy System, Inc. (Yankee Energy Services Company, Yankee Energy Financial Services Company and NorConn Properties, Inc.).


Effective January 1, 2007, financial information for the remaining operations of HWP that were not exited as part of the sale of the competitive generation business was included as part of the Other reportable segment as these operations were no longer considered part of NU Enterprises subsequent to the sale.  Accordingly, HWP's remaining operations have been presented as part of the Other reportable segment for each of the three and six months ended June 30, 2008 and 2007.


NU's condensed consolidated statements of income for the three and six months ended June 30, 2007 present the remaining activity for NGC, Mt. Tom and SECI as discontinued operations.  For further information and information regarding the exit from these businesses, see Note 7, "Discontinued Operations," to the condensed consolidated financial statements.


NU's segment information for the three and six months ended June 30, 2008 and 2007 is as follows (certain amounts presented in the financial statements may differ from amounts presented in the segment schedules due to rounding):


 

 

For the Three Months Ended June 30, 2008

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

1,098.7 

 

$

113.0 

 

$

101.4 

 

$

30.0 

 

$

100.2 

 

$

(118.0)

 

$

1,325.3 

Depreciation and amortization

 

 

(136.9)

 

 

(6.6)

 

 

(11.6)

 

 

(0.1)

 

 

(3.1)

 

 

0.2 

 

 

(158.1)

Other operating expenses

 

 

(889.0)

 

 

(103.3)

 

 

(33.4)

 

 

(25.1)

 

 

(95.4)

 

 

117.1 

 

 

(1,029.1)

Operating income/(loss)

 

 

72.8 

 

 

3.1 

 

 

56.4 

 

 

4.8 

 

 

1.7 

 

 

(0.7)

 

 

138.1 

Interest expense, net of AFUDC

 

 

(41.6)

 

 

(4.9)

 

 

(11.8)

 

 

(1.3)

 

 

(9.1)

 

 

2.6 

 

 

(66.1)

Interest income

 

 

1.0 

 

 

 

 

1.6 

 

 

0.2 

 

 

2.3 

 

 

(3.6)

 

 

1.5 

Other income, net

 

 

1.6 

 

 

 

 

7.2 

 

 

 

 

36.4 

 

 

(36.3)

 

 

8.9 

Income tax (expense)/benefit

 

 

(6.3)

 

 

0.8 

 

 

(17.7)

 

 

(1.5)

 

 

1.9 

 

 

(0.4)

 

 

(23.2)

Preferred dividends

 

 

(0.9)

 

 

 

 

(0.5)

 

 

 

 

 

 

 

 

(1.4)

Net income

 

$

26.6 

 

$

(1.0)

 

$

35.2 

 

$

2.2 

 

$

33.2 

 

$

(38.4)

 

$

57.8 


 

 

For the Six Months Ended June 30, 2008

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

2,296.8 

 

$

312.6 

 

$

196.3 

 

$

63.9 

 

$

200.1 

 

$

(224.4)

 

$

2,845.3 

Depreciation and amortization

 

 

(265.8)

 

 

(13.0)

 

 

(22.3)

 

 

(0.3)

 

 

(7.1)

 

 

0.4 

 

 

(308.1)

Other operating expenses

 

 

(1,870.7)

 

 

(261.6)

 

 

(65.1)

 

 

(54.3)

 

 

(236.1)

 

 

221.0 

 

 

(2,266.8)

Operating income/(loss)

 

 

160.3 

 

 

38.0 

 

 

108.9 

 

 

9.3 

 

 

(43.1)

 

 

(3.0)

 

 

270.4 

Interest expense, net of AFUDC

 

 

(83.2)

 

 

(10.1)

 

 

(22.2)

 

 

(3.0)

 

 

(15.0)

 

 

4.8 

 

 

(128.7)

Interest income

 

 

1.9 

 

 

 

 

2.0 

 

 

0.6 

 

 

4.0 

 

 

(5.8)

 

 

2.7 

Other income, net

 

 

8.4 

 

 

0.1 

 

 

12.6 

 

 

 

 

110.4 

 

 

(110.3)

 

 

21.2 

Income tax (expense)/benefit

 

 

(23.8)

 

 

(10.4)

 

 

(32.6)

 

 

(2.8)

 

 

24.0 

 

 

(1.0)

 

 

(46.6)

Preferred dividends

 

 

(1.8)

 

 

 

 

(1.0)

 

 

 

 

 

 

 

 

(2.8)

Net income

 

$

61.8 

 

$

17.6 

 

$

67.7 

 

$

4.1 

 

$

80.3 

 

$

(115.3)

 

$

116.2 

Total assets (2)

 

$

11,160.0 

 

$

1,280.8 

 

$

 

$

111.3 

 

$

4,232.2 

 

$

(4,075.0)

 

$

12,709.3 

Cash flows for total
  investments in plant

 

$


205.5 

 

$


23.4 

 

$


383.6 

 

$


 

$


12.6 

 


$


 


$


625.1 


 

 

For the Three Months Ended June 30, 2007

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

1,160.0 

 

$

95.0 

 

$

73.0 

 

$

72.2 

 

$

99.9 

 

$

(108.3)

 

$

1,391.8 

Depreciation and amortization

 

 

(90.9)

 

 

(5.8)

 

 

(9.2)

 

 

(0.1)

 

 

(1.7)

 

 

0.7 

 

 

(107.0)

Other operating expenses

 

 

(998.0)

 

 

(85.2)

 

 

(27.1)

 

 

(70.6)

 

 

(93.7)

 

 

106.6 

 

 

(1,168.0)

Operating income

 

 

71.1 

 

 

4.0 

 

 

36.7 

 

 

1.5 

 

 

4.5 

 

 

 (1.0)

 

 

116.8 

Interest expense, net of AFUDC

 

 

(41.4)

 

 

(4.2)

 

 

(8.3)

 

 

(2.3)

 

 

(8.9)

 

 

5.5 

 

 

(59.6)

Interest income

 

 

1.0 

 

 

 

 

0.7 

 

 

0.8 

 

 

7.6 

 

 

(5.4)

 

 

4.7 

Other income, net

 

 

3.8 

 

 

0.5 

 

 

2.6 

 

 

 

 

29.5 

 

 

(29.2)

 

 

7.2 

Income tax expense

 

 

(10.5)

 

 

 

 

(10.1)

 

 

 

 

(0.5)

 

 

(0.6)

 

 

(21.7)

Preferred dividends

 

 

(0.9)

 

 

 

 

(0.5)

 

 

 

 

 

 

 

 

(1.4)

Income from
  continuing operations

 

 


23.1 

 

 


0.3 

 

 


21.1 

 

 


 

 


32.2 

 




(30.7)

 




46.0 

Income from
  discontinued operations

 

 


 

 


 

 


 

 


2.5 

 

 


 

 


 

 


2.5 

Net income

 

$

23.1 

 

$

0.3 

 

$

21.1 

 

$

2.5 

 

$

32.2 

 

$

(30.7)

 

$

48.5 




26





 

 

For the Six Months Ended June 30, 2007

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

2,541.4 

 

$

279.8 

 

$

141.8 

 

$

152.1 

 

$

193.9 

 

$

(213.7)

 

$

3,095.3 

Depreciation and amortization

 

 

(196.1)

 

 

(11.6)

 

 

(18.2)

 

 

(0.3)

 

 

(4.1)

 

 

1.7 

 

 

(228.6)

Other operating expenses

 

 

(2,187.2)

 

 

(239.6)

 

 

(55.4)

 

 

(140.1)

 

 

(181.7)

 

 

209.8 

 

 

(2,594.2)

Operating income

 

 

158.1 

 

 

28.6 

 

 

68.2 

 

 

11.7 

 

 

8.1 

 

 

(2.2)

 

 

272.5 

Interest expense, net of AFUDC

 

 

(83.8)

 

 

(8.5)

 

 

(17.1)

 

 

(5.3)

 

 

(17.1)

 

 

12.9 

 

 

(118.9)

Interest income

 

 

2.0 

 

 

 

 

1.1 

 

 

1.3 

 

 

20.3 

 

 

(12.8)

 

 

11.9 

Other income, net

 

 

8.0 

 

 

1.0 

 

 

3.9 

 

 

 

 

86.0 

 

 

(84.8)

 

 

14.1 

Income tax expense

 

 

(24.6)

 

 

(7.2)

 

 

(18.3)

 

 

(1.5)

 

 

(1.7)

 

 

(1.1)

 

 

(54.4)

Preferred dividends

 

 

(2.0)

 

 

 

 

(0.8)

 

 

 

 

 - 

 

 

 

 

(2.8)

Income from
  continuing operations

 

 


57.7 

 

 


13.9 

 

 


37.0 

 

 


6.2 

 

 


95.6 

 

 


(88.0)

 

 


122.4 

Income from
  discontinued operations

 

 


 

 


 

 


 

 


1.2 

 

 


 

 


 

 


1.2 

Net income

 

$

57.7 

 

$

13.9 

 

$

37.0 

 

$

7.4 

 

$

95.6 

 

$

(88.0)

 

$

123.6 

Cash flows for total
 investments in plant

 

$


184.4 

 

$


29.2 

 

$


270.2 

 

$


1.2 

 

$


6.1 

 


$


 


$


491.1 


(1)

Includes PSNH's generation activities.


(2)

Information for segmenting total assets between electric distribution and transmission is not available at June 30, 2008.  On an NU consolidated basis, these distribution and transmission assets are disclosed in the electric distribution columns above.


The regulated companies information related to the distribution and transmission segments for CL&P, PSNH and WMECO for the three and six months ended June 30, 2008 and 2007 is as follows:


 

 

CL&P - For the Three Months Ended June 30, 2008

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

741.7 

 

$

80.2 

 

821.9 

Depreciation and amortization

 

 

(120.8)

 

 

(9.2)

 

 

(130.0)

Other operating expenses

 

 

(579.4)

 

 

(22.9)

 

 

(602.3)

Operating income

 

 

41.5 

 

 

48.1 

 

 

89.6 

Interest expense, net of AFUDC

 

 

(26.3)

 

 

(10.1)

 

 

(36.4)

Interest income

 

 

0.7 

 

 

1.0 

 

 

1.7 

Other income, net

 

 

1.5 

 

 

6.4 

 

 

7.9 

Income tax expense

 

 

(1.7)

 

 

(14.9)

 

 

(16.6)

Preferred dividends

 

 

(0.9)

 

 

(0.5)

 

 

(1.4)

Net income

 

$

14.8 

 

$

30.0 

 

$

44.8 


 

 

CL&P - For the Six Months Ended June 30, 2008

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

1,553.8 

 

$

153.6 

 

1,707.4 

Depreciation and amortization

 

 

(208.8)

 

 

(17.6)

 

 

(226.4)

Other operating expenses

 

 

(1,255.0)

 

 

(46.6)

 

 

(1,301.6)

Operating income

 

 

90.0 

 

 

89.4 

 

 

179.4 

Interest expense, net of AFUDC

 

 

(52.6)

 

 

(18.8)

 

 

(71.4)

Interest income

 

 

1.3 

 

 

1.4 

 

 

2.7 

Other income, net

 

 

7.9 

 

 

11.2 

 

 

19.1 

Income tax expense

 

 

(11.1)

 

 

(26.4)

 

 

(37.5)

Preferred dividends

 

 

(1.8)

 

 

(1.0)

 

 

(2.8)

Net income

 

$

33.7 

 

$

55.8 

 

89.5 

Cash flows for total investments in plant

 

$

119.4 

 

$

322.6 

 

$

442.0 




27





 

 

CL&P - For the Three Months Ended June 30, 2007

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

814.2 

 

$

56.2 

 

870.4 

Depreciation and amortization

 

 

(72.1)

 

 

(7.1)

 

 

(79.2)

Other operating expenses

 

 

(708.0)

 

 

(19.2)

 

 

(727.2)

Operating income

 

 

34.1 

 

 

29.9 

 

 

64.0 

Interest expense, net of AFUDC

 

 

(26.0)

 

 

(6.9)

 

 

(32.9)

Interest income

 

 

0.7 

 

 

0.5 

 

 

1.2 

Other income, net

 

 

3.2 

 

 

2.4 

 

 

5.6 

Income tax expense

 

 

(4.1)

 

 

(8.0)

 

 

(12.1)

Preferred dividends

 

 

(0.9)

 

 

(0.5)

 

 

(1.4)

Net income

 

$

7.0 

 

$

17.4 

 

24.4 


 

 

CL&P - For the Six Months Ended June 30, 2007

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

1,805.5 

 

$

108.6 

 

1,914.1 

Depreciation and amortization

 

 

(138.6)

 

 

(14.1)

 

 

(152.7)

Other operating expenses

 

 

(1,579.2)

 

 

(39.3)

 

 

(1,618.5)

Operating income

 

 

87.7 

 

 

55.2 

 

 

142.9 

Interest expense, net of AFUDC

 

 

(53.9)

 

 

(14.1)

 

 

(68.0)

Interest income

 

 

1.4 

 

 

0.9 

 

 

2.3 

Other income, net

 

 

7.0 

 

 

3.5 

 

 

10.5 

Income tax expense

 

 

(12.6)

 

 

(14.3)

 

 

(26.9)

Preferred dividends

 

 

(2.0)

 

 

(0.8)

 

 

(2.8)

Net income

 

$

27.6 

 

$

30.4 

 

58.0 

Cash flows for total investments in plant

 

$

112.6 

 

$

240.6 

 

$

353.2 


 

 

PSNH - For the Three Months Ended June 30, 2008

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

259.2 

 

$

14.8 

 

274.0 

Depreciation and amortization

 

 

(4.5)

 

 

(1.8)

 

 

(6.3)

Other operating expenses

 

 

(230.7)

 

 

(7.0)

 

 

(237.7)

Operating income

 

 

24.0 

 

 

6.0 

 

 

30.0 

Interest expense, net of AFUDC

 

 

(10.9)

 

 

(1.2)

 

 

(12.1)

Interest income

 

 

0.2 

 

 

0.4 

 

 

0.6 

Other income, net

 

 

0.2 

 

 

0.5 

 

 

0.7 

Income tax expense

 

 

(3.4)

 

 

(2.1)

 

 

(5.5)

Net income

 

$

10.1 

 

$

3.6 

 

13.7 


 

 

PSNH - For the Six Months Ended June 30, 2008

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

535.9 

 

$

29.9 

 

565.8 

Depreciation and amortization

 

 

(34.7)

 

 

(3.4)

 

 

(38.1)

Other operating expenses

 

 

(450.5)

 

 

(12.3)

 

 

(462.8)

Operating income

 

 

50.7 

 

 

14.2 

 

 

64.9 

Interest expense, net of AFUDC

 

 

(21.8)

 

 

(2.3)

 

 

(24.1)

Interest income

 

 

0.3 

 

 

0.4 

 

 

0.7 

Other income, net

 

 

0.6 

 

 

1.3 

 

 

1.9 

Income tax expense

 

 

(8.2)

 

 

(4.8)

 

 

(13.0)

Net income

 

$

21.6 

 

$

8.8 

 

30.4 

Cash flows for total investments in plant

 

$

71.6 

 

$

47.6 

 

$

119.2 




28





 

 

PSNH - For the Three Months Ended June 30, 2007

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

239.1 

 

$

11.1 

 

250.2 

Depreciation and amortization

 

 

(9.1)

 

 

(1.4)

 

 

(10.5)

Other operating expenses

 

 

(203.2)

 

 

(4.9)

 

 

(208.1)

Operating income

 

 

26.8 

 

 

4.8 

 

 

31.6 

Interest expense, net of AFUDC

 

 

(10.6)

 

 

(1.0)

 

 

(11.6)

Interest income

 

 

0.1 

 

 

0.1 

 

 

0.2 

Other income, net

 

 

0.3 

 

 

0.1 

 

 

0.4 

Income tax expense

 

 

(4.0)

 

 

(1.4)

 

 

(5.4)

Net income

 

$

12.6 

 

$

2.6 

 

15.2 


 

 

PSNH - For the Six Months Ended June 30, 2007

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

505.3 

 

$

22.0 

 

527.3 

Depreciation and amortization

 

 

(37.7)

 

 

(2.8)

 

 

(40.5)

Other operating expenses

 

 

(420.7)

 

 

(10.5)

 

 

(431.2)

Operating income

 

 

46.9 

 

 

8.7 

 

 

55.6 

Interest expense, net of AFUDC

 

 

(21.0)

 

 

(2.1)

 

 

(23.1)

Interest income

 

 

0.3 

 

 

0.1 

 

 

0.4 

Other income, net

 

 

0.6 

 

 

0.4 

 

 

1.0 

Income tax expense

 

 

(6.1)

 

 

(2.6)

 

 

(8.7)

Net income

 

$

20.7 

 

$

4.5 

 

25.2 

Cash flows for total investments in plant

 

$

56.8 

 

$

22.7 

 

$

79.5 


 (1)

Includes PSNH's generation activities.  


 

 

WMECO - For the Three Months Ended June 30, 2008

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

97.8 

 

$

6.4 

 

104.2 

Depreciation and amortization

 

 

(11.6)

 

 

(0.7)

 

 

(12.3)

Other operating expenses

 

 

(79.0)

 

 

(3.3)

 

 

(82.3)

Operating income

 

 

7.2 

 

 

2.4 

 

 

9.6 

Interest expense, net of AFUDC

 

 

(4.4)

 

 

(0.4)

 

 

(4.8)

Interest income

 

 

0.2 

 

 

0.2 

 

 

0.4 

Other income, net

 

 

 

 

0.1 

 

 

0.1 

Income tax expense

 

 

(1.3)

 

 

(0.7)

 

 

(2.0)

Net income

 

$

1.7 

 

$

1.6 

 

3.3 


 

 

WMECO - For the Six Months Ended June 30, 2008

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

207.3 

 

$

12.7 

 

220.0 

Depreciation and amortization

 

 

(22.4)

 

 

(1.3)

 

 

(23.7)

Other operating expenses

 

 

(165.4)

 

 

(6.1)

 

 

(171.5)

Operating income

 

 

19.5 

 

 

5.3 

 

 

24.8 

Interest expense, net of AFUDC

 

 

(8.8)

 

 

(1.2)

 

 

(10.0)

Interest income

 

 

0.3 

 

 

0.3 

 

 

0.6 

Other income, net

 

 

 

 

0.2 

 

 

0.2 

Income tax expense

 

 

(4.5)

 

 

(1.5)

 

 

(6.0)

Net income

 

$

6.5 

 

$

3.1 

 

9.6 

Cash flows for total investments in plant

 

$

14.6 

 

$

13.3 

 

27.9 




29





 

 

WMECO - For the Three Months Ended June 30, 2007

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

106.7 

 

$

5.7 

 

112.4 

Depreciation and amortization

 

 

(9.6)

 

 

(0.7)

 

 

(10.3)

Other operating expenses

 

 

(86.8)

 

 

(3.0)

 

 

(89.8)

Operating income

 

 

10.3 

 

 

2.0 

 

 

12.3 

Interest expense, net of AFUDC

 

 

(4.7)

 

 

(0.4)

 

 

(5.1)

Interest income

 

 

0.1 

 

 

0.1 

 

 

0.2 

Other income, net

 

 

0.2 

 

 

0.1 

 

 

0.3 

Income tax expense

 

 

(2.4)

 

 

(0.7)

 

 

(3.1)

Net income

 

$

3.5 

 

$

1.1 

 

4.6 


 

 

WMECO - For the Six Months Ended June 30, 2007

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

230.6 

 

$

11.3 

 

241.9 

Depreciation and amortization

 

 

(19.8)

 

 

(1.3)

 

 

(21.1)

Other operating expenses

 

 

(187.4)

 

 

(5.7)

 

 

(193.1)

Operating income

 

 

23.4 

 

 

4.3 

 

 

27.7 

Interest expense, net of AFUDC

 

 

(8.9)

 

 

(0.9)

 

 

(9.8)

Interest income

 

 

0.3 

 

 

0.1 

 

 

0.4 

Other income, net

 

 

0.5 

 

 

 

 

0.5 

Income tax expense

 

 

(5.9)

 

 

(1.4)

 

 

(7.3)

Net income

 

$

9.4 

 

$

2.1 

 

$

11.5 

Cash flows for total investments in plant

 

$

15.0 

 

$

6.9 

 

21.9 



30




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Trustees and Shareholders of Northeast Utilities:


We have reviewed the accompanying condensed consolidated balance sheet of Northeast Utilities and subsidiaries (the "Company") as of June 30, 2008, and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2008 and 2007, and of cash flows for the six-month periods ended June 30, 2008 and 2007.  These interim financial statements are the responsibility of the Company’s management.


We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.


Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.


As discussed in Notes 1.C. and 3., the Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements, as of January 1, 2008.


We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and consolidated statement of capitalization of Northeast Utilities and subsidiaries as of December 31, 2007, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2008 (which report included an explanatory paragraph related to the adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109, as of January 1, 2007), we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



/s/

Deloitte & Touche LLP

 

Deloitte & Touche LLP



Hartford, Connecticut

August 6, 2008




31




This Page Intentionally Left Blank



32




THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES



33





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

2008

 

 

2007

 

 

(Thousands of Dollars)

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

  Cash

 

$                        17 

 

 

$                      538 

  Investments in securitizable assets (Note 1E)

 

 

 

308,182 

  Receivables, less provision for uncollectible

 

 

 

 

 

    accounts of $20,787 in 2008 and $7,874 in 2007

 

348,544 

 

 

118,342 

  Accounts receivable from affiliated companies

 

8,798 

 

 

3,339 

  Unbilled revenues

 

117,906 

 

 

8,225 

  Taxes receivable

 

 

 

16,245 

  Materials and supplies

 

66,041 

 

 

55,477 

  Derivative assets - current

 

90,013 

 

 

57,003 

  Prepayments and other

 

9,514 

 

 

17,387 

 

 

640,833 

 

 

584,738 

 

 

 

 

 

 

Property, Plant and Equipment:

 

 

 

 

 

  Electric utility

 

5,189,098 

 

 

4,899,075 

     Less: Accumulated depreciation

 

1,318,485 

 

 

1,279,697 

 

 

3,870,613 

 

 

3,619,378 

  Construction work in progress

 

926,880 

 

 

782,468 

 

 

4,797,493 

 

 

4,401,846 

 

 

 

 

 

 

Deferred Debits and Other Assets:

 

 

 

 

 

  Regulatory assets

 

1,778,353 

 

 

1,329,963 

  Prepaid pension

 

351,517 

 

 

334,786 

  Derivative assets - long-term

 

392,777 

 

 

278,726 

  Other

 

75,222 

 

 

88,040 

 

 

2,597,869 

 

 

2,031,515 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$            8,036,195 

 

 

$            7,018,099 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 




34





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

2008

 

 

2007

 

 

(Thousands of Dollars)

LIABILITIES AND CAPITALIZATION

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

  Notes payable to affiliated companies

 

$              52,325 

 

 

$              38,825 

  Accounts payable

 

369,577 

 

 

368,356 

  Accounts payable to affiliated companies

 

41,801 

 

 

53,096 

  Accrued taxes

 

24,707 

 

 

  Accrued interest

 

33,444 

 

 

29,532 

  Derivative liabilities - current

 

2,113 

 

 

4,234 

  Counterparty deposits

 

24,825 

 

 

  Other

 

119,336 

 

 

107,940 

 

 

668,128 

 

 

601,983 

 

 

 

 

 

 

Rate Reduction Bonds

 

464,746 

 

 

548,686 

 

 

 

 

 

 

Deferred Credits and Other Liabilities:

 

 

 

 

 

  Accumulated deferred income taxes

 

761,364 

 

 

698,789 

  Accumulated deferred investment tax credits

 

20,109 

 

 

21,412 

  Deferred contractual obligations

 

141,485 

 

 

152,735 

  Regulatory liabilities

 

599,789 

 

 

601,455 

  Derivative liabilities - long-term

 

725,613 

 

 

135,991 

  Accrued postretirement benefits

 

74,066 

 

 

78,587 

  Other

 

201,744 

 

 

191,464 

 

 

2,524,170 

 

 

1,880,433 

Capitalization:

 

 

 

 

 

  Long-Term Debt

 

2,330,694 

 

 

2,028,546 

 

 

 

 

 

 

  Preferred Stock - Non-Redeemable

 

116,200 

 

 

116,200 

 

 

 

 

 

 

  Common Stockholder's Equity:

 

 

 

 

 

    Common stock, $10 par value - authorized

 

 

 

 

 

      24,500,000 shares; 6,035,205 shares outstanding

 

 

 

 

 

      in 2008 and 2007

 

60,352 

 

 

60,352 

    Capital surplus, paid in

 

1,301,226 

 

 

1,243,940 

    Retained earnings

 

574,451 

 

 

538,138 

    Accumulated other comprehensive loss

 

(3,772)

 

 

(179)

  Common Stockholder's Equity

 

1,932,257 

 

 

1,842,251 

Total Capitalization

 

4,379,151 

 

 

3,986,997 

 

 

 

 

 

 

Commitments and Contingencies (Note 5)

 

 

 

 

 

.

 

 

 

 

 

Total Liabilities and Capitalization

 

$         8,036,195 

 

 

$         7,018,099 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 




35





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2008

 

2007

 

2008

 

2007

 

(Thousands of Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

 

$          821,875 

 

$          870,379 

 

$       1,707,374 

 

$       1,914,065 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

  Operation -

 

 

 

 

 

 

 

 

     Fuel, purchased and net interchange power

 

398,085 

 

516,270 

 

891,893 

 

1,205,043 

     Other

 

132,329 

 

143,664 

 

261,372 

 

277,238 

  Maintenance

 

33,154 

 

29,456 

 

62,434 

 

50,890 

  Depreciation

 

39,855 

 

38,293 

 

78,724 

 

76,482 

  Amortization of regulatory assets, net

 

56,404 

 

9,649 

 

75,988 

 

9,319 

  Amortization of rate reduction bonds

 

33,649 

 

31,268 

 

71,680 

 

66,929 

  Taxes other than income taxes

 

38,764 

 

37,828 

 

85,834 

 

85,249 

    Total operating expenses

 

732,240 

 

806,428 

 

1,527,925 

 

1,771,150 

Operating Income

 

89,635 

 

63,951 

 

179,449 

 

142,915 

 

 

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

 

 

 

  Interest on long-term debt

 

25,392 

 

21,564 

 

48,999 

 

39,180 

  Interest on rate reduction bonds

 

7,595 

 

9,747 

 

15,811 

 

19,867 

  Other interest

 

3,404 

 

1,630 

 

6,561 

 

8,952 

    Interest expense, net

 

36,391 

 

32,941 

 

71,371 

 

67,999 

Other Income, Net

 

9,575 

 

6,879 

 

21,698 

 

12,730 

Income Before Income Tax Expense

 

62,819 

 

37,889 

 

129,776 

 

87,646 

Income Tax Expense

 

16,564 

 

12,103 

 

37,453 

 

26,866 

Net Income

 

$            46,255 

 

$            25,786 

 

$            92,323 

 

$            60,780 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 




36





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

 

 

2008

 

 

2007

 

 

(Thousands of Dollars)

Operating Activities:

 

 

 

 

 

Net income

$

92,323 

 

$

60,780 

Adjustments to reconcile to net cash flows

 

 

 

 

 

  provided by operating activities:

 

 

 

 

 

Bad debt expense

 

3,042 

 

 

9,699 

Depreciation

 

78,724 

 

 

76,482 

Deferred income taxes

 

49,945 

 

 

 (13,111)

Pension income, net of capitalized portion

 

 (5,681)

 

 

 (4,097)

Amortization of recoverable energy costs

 

      - 

 

 

2,064 

Amortization of rate reduction bonds

 

71,680 

 

 

66,929 

Amortization of regulatory assets, net

 

75,988 

 

 

9,319 

Regulatory (refunds and underrecoveries)/overrecoveries

 

 (133,161)

 

 

41,371 

Settlement of cash flow hedge instruments

 

 (3,890)

 

 

       - 

Deferred contractual obligations

 

 (11,250)

 

 

 (15,762)

Other non-cash adjustments

 

 (12,301)

 

 

 (7,442)

Other uses of cash

 

 (7,297)

 

 

 (11,915)

Changes in current assets and liabilities:

 

 

 

 

 

Receivables and unbilled revenues, net

 

 (18,814)

 

 

 (8,708)

Materials and supplies

 

 (10,569)

 

 

 (7,996)

Investments in securitizable assets

 

 (25,787)

 

 

17,675 

Other current assets

 

7,794 

 

 

4,440 

Accounts payable

 

 (21,439)

 

 

(18,242)

Taxes receivable/accrued

 

47,209 

 

 

 (150,041)

Counterparty deposits

 

24,825 

 

 

Other current liabilities

 

6,586 

 

 

6,938 

Net cash flows provided by operating activities

 

207,927 

 

 

58,383 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

Investments in property and plant

 

 (442,014)

 

 

 (353,241)

Proceeds from sales of investment securities

 

1,322 

 

 

858 

Purchases of investment securities

 

 (1,353)

 

 

 (896)

Rate reduction bond escrow and other deposits

 

5,643 

 

 

5,128 

Other investing activities

 

623 

 

 

648 

Net cash flows used in investing activities

 

 (435,779)

 

 

 (347,503)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

Issuance of long-term debt

 

300,000 

 

 

300,000 

Retirement of rate reduction bonds

 

 (83,940)

 

 

 (77,796)

Increase/(decrease) in NU Money Pool borrowings

 

13,500 

 

 

 (102,200)

Capital contributions from NU parent

 

57,058 

 

 

215,000 

Cash dividends on preferred stock

 

 (2,779)

 

 

 (2,779)

Cash dividends on common stock

 

 (53,231)

 

 

 (39,591)

Other financing activities

 

 (3,277)

 

 

 (4,818)

Net cash flows provided by financing activities

 

227,331 

 

 

287,816 

Net decrease in cash

 

 (521)

 

 

 (1,304)

Cash - beginning of period

 

538 

 

 

3,310 

Cash - end of period

$

17 

 

2,006 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.





37




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38





PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE



39





PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

June 30,

 

December 31,

 

2008

 

2007

 

(Thousands of Dollars)

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

  Cash

$                     224 

 

$                     450 

  Receivables, less provision for uncollectible

 

 

 

    accounts of $3,201 in 2008 and $2,675 in 2007

85,787 

 

97,749 

  Accounts receivable from affiliated companies

5,564 

 

817 

  Unbilled revenues

50,626 

 

45,607 

  Notes receivable from affiliated companies

16,200 

 

  Taxes receivable

37,335 

 

255 

  Fuel, materials and supplies

81,891 

 

72,215 

  Derivative assets - current

64,778 

 

6,146 

  Prepayments and other

15,322 

 

14,327 

 

357,727 

 

237,566 

 

 

 

 

Property, Plant and Equipment:

 

 

 

  Electric utility

2,132,769 

 

2,010,220 

     Less: Accumulated depreciation

759,136 

 

737,917 

 

1,373,633 

 

1,272,303 

  Construction work in progress

95,325 

 

116,102 

 

1,468,958 

 

1,388,405 

 

 

 

 

Deferred Debits and Other Assets:

 

 

 

  Regulatory assets

374,076 

 

401,374 

  Derivative assets - long-term

27,984 

 

12,075 

  Other

64,676 

 

67,549 

 

466,736 

 

480,998 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

$           2,293,421 

 

$           2,106,969 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 




40





PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

June 30,

 

December 31,

 

2008

 

2007

 

(Thousands of Dollars)

LIABILITIES AND CAPITALIZATION

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

  Notes payable to banks

$                        - 

 

$                 10,000 

  Notes payable to affiliated companies

 

11,300 

  Accounts payable

84,994 

 

91,356 

  Accounts payable to affiliated companies

19,032 

 

15,717 

  Accrued interest

9,850 

 

9,175 

  Derivative liabilities - current

 

2,453 

  Other

50,347 

 

22,664 

 

164,223 

 

162,665 

 

 

 

 

Rate Reduction Bonds

257,638 

 

282,018 

 

 

 

 

Deferred Credits and Other Liabilities:

 

 

 

  Accumulated deferred income taxes

169,508 

 

192,094 

  Accumulated deferred investment tax credits

468 

 

582 

  Deferred contractual obligations

25,525 

 

28,215 

  Regulatory liabilities

185,428 

 

127,569 

  Accrued pension

144,001 

 

138,346 

  Accrued postretirement benefits

27,765 

 

29,057 

  Other

47,965 

 

31,559 

 

600,660 

 

547,422 

Capitalization:

 

 

 

  Long-Term Debt

686,753 

 

576,997 

 

 

 

 

  Common Stockholder's Equity:

 

 

 

    Common stock, $1 par value - authorized

 

 

 

     100,000,000 shares; 301 shares outstanding

 

 

 

     in 2008 and 2007

 

    Capital surplus, paid in

311,159 

 

275,569 

    Retained earnings

273,720 

 

261,528 

    Accumulated other comprehensive (loss)/income

 (732)

 

770 

  Common Stockholder's Equity

584,147 

 

537,867 

Total Capitalization

1,270,900 

 

1,114,864 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 5)

 

 

 

 

 

 

 

Total Liabilities and Capitalization

$          2,293,421 

 

$            2,106,969 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 




41






PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2008

 

2007

 

2008

 

2007

 

(Thousands of Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$           274,039 

 

$            250,233 

 

$            565,804 

 

$           527,329 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

  Operation -

 

 

 

 

 

 

 

     Fuel, purchased and net interchange power

142,534 

 

126,187 

 

284,435 

 

268,612 

     Other

55,861 

 

49,488 

 

109,107 

 

102,539 

  Maintenance

29,283 

 

22,708 

 

49,173 

 

40,112 

  Depreciation

13,720 

 

13,354 

 

27,222 

 

26,643 

  Amortization of regulatory liabilities, net

 (18,319)

 

 (15,503)

 

 (11,911)

 

 (11,709)

  Amortization of rate reduction bonds

10,870 

 

12,697 

 

22,747 

 

25,603 

  Taxes other than income taxes

10,045 

 

9,734 

 

20,121 

 

19,884 

    Total operating expenses

243,994 

 

218,665 

 

500,894 

 

471,684 

Operating Income

30,045 

 

31,568 

 

64,910 

 

55,645 

 

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

 

 

  Interest on long-term debt

7,721 

 

6,254 

 

14,999 

 

12,405 

  Interest on rate reduction bonds

4,081 

 

4,603 

 

8,232 

 

9,311 

  Other interest

332 

 

787 

 

890 

 

1,380 

    Interest expense, net

12,134 

 

11,644 

 

24,121 

 

23,096 

Other Income, Net

1,262 

 

720 

 

2,588 

 

1,393 

Income Before Income Tax Expense

19,173 

 

20,644 

 

43,377 

 

33,942 

Income Tax Expense

5,482 

 

5,399 

 

12,997 

 

8,730 

Net Income

$             13,691 

 

$              15,245 

 

$              30,380 

 

$             25,212 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 




42





PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

 

 

2008

 

 

2007

 

 

(Thousands of Dollars)

Operating activities: