September 2009 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 September 30, 2009     

 

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

 

 

 

 

ü

 


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  


 

Yes

No

 

 

 

 

 

 


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

ü

 

 

 

 

The Connecticut Light and Power Company

 

 

 

 

ü

Public Service Company of New Hampshire

 

 

 

 

ü

Western Massachusetts Electric Company

 

 

 

 

ü


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


 

Yes

No

 

 

 

Northeast Utilities

 

ü

The Connecticut Light and Power Company

 

ü

Public Service Company of New Hampshire

 

ü

Western Massachusetts Electric Company

 

ü


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 October 31, 2009

Northeast Utilities
Common shares, $5.00 par value


175,463,545 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 each 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.  

 

 

CURRENT OR FORMER NU COMPANIES, SEGMENTS OR INVESTMENTS:

 

 

Boulos

E.S. Boulos Company

CL&P

The Connecticut Light and Power Company

HWP

Holyoke Water Power Company

NAESCO

North Atlantic Energy Service Corporation

NGC

Northeast Generation Company

NGS

Northeast Generation Services Company and subsidiaries

NU or the Company

Northeast Utilities and subsidiaries

NU Enterprises

NU Enterprises, Inc. is the parent company of Select Energy, NGS, SECI and Boulos.  For further information, see Note 11, "Segment Information," to the unaudited condensed consolidated financial statements.

NUSCO

Northeast Utilities Service Company

NU parent and other companies

NU parent and other companies is comprised of NU parent, NUSCO and other subsidiaries, including HWP, The Rocky River Realty Company (a real estate subsidiary), Mode 1 Communications, Inc. (telecommunications) and the non-energy-related subsidiaries of Yankee (Yankee Energy Services Company, and Yankee Energy Financial Services Company)

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 and WMECO, the generation segment of PSNH, and Yankee Gas, a natural gas local distribution company.  For further information, see Note 11, "Segment Information," to the unaudited 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:

 

 

 

DOE

U.S. Department of Energy

DPU

Massachusetts Department of Public Utilities

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: 

 

 

 

2008 Form 10-K

The Northeast Utilities and subsidiaries combined 2008 Annual Report on Form 10-K as filed with the SEC

AFUDC

Allowance For Funds Used During Construction

C&LM

Conservation and Load Management

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 Charge

GAAP

Accounting principles generally accepted in the United States of America

GSC

Generation Service Charge

GWh

Gigawatt Hours

IPP

Independent Power Producers

ISO-NE

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

kWh

Kilowatt-Hours

KV

Kilovolt

LBCB

Lehman Brothers Commercial Bank, Inc.

LOC

Letter of Credit

Money Pool

Northeast Utilities Money Pool

MW

Megawatts

MWh

Megawatt-Hours

NEEWS

New England East-West Solutions

NU supplemental benefit trust

The NU Trust Under Supplemental Executive Retirement Plan

NYMPA

New York Municipal Power Agency

PBOP

Postretirement Benefits Other Than Pension

PCRBs

Pollution Control Revenue Bonds

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.

ROE

Return on Equity

RRB

Rate Reduction Bonds

SBC

Systems Benefit Charge

SCRC

Stranded Cost Recovery Charge

SERP

Supplemental Executive Retirement Plan

TCAM

Transmission Cost Adjustment Mechanism

UI

The United Illuminating Company




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 1Unaudited Condensed Consolidated Financial Statements for the Following Companies:

 

 

 

Northeast Utilities and Subsidiaries

 

 

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2009 and December 31, 2008

2

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2009 and 2008

4

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2009 and 2008

5

 

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

6

 

Report of Independent Registered Public Accounting Firm

34

 

The Connecticut Light and Power Company and Subsidiaries

 

 

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2009 and December 31, 2008

36

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2009 and 2008

38

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2009 and 2008

39

 

Public Service Company of New Hampshire and Subsidiaries

 

 

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2009 and December 31, 2008

42

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2009 and 2008

44

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2009 and 2008

45

 

Western Massachusetts Electric Company and Subsidiary

 

 

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2009 and December 31, 2008

48

 

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2009 and 2008

50

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2009 and 2008

51

 




iii





 

Page

 

 

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

 

 

Northeast Utilities and Subsidiaries

52

 

The Connecticut Light and Power Company and Subsidiaries

75

 

Public Service Company of New Hampshire and Subsidiaries

80

 

Western Massachusetts Electric Company and Subsidiary

83

 

ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk

87

 

 

ITEM 4 - Controls and Procedures

88

 

PART II - OTHER INFORMATION

 

ITEM 1 - Legal Proceedings

90

 

ITEM 1A - Risk Factors

90

 

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

90

 

 

ITEM 6 - Exhibits

91

 

SIGNATURES

93

 




iv




NORTHEAST UTILITIES AND SUBSIDIARIES




1






NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

September 30,

 

December 31,

(Thousands of Dollars)  

2009

 

2008

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

  Cash and cash equivalents

$               248,977 

 

$                 89,816 

  Receivables, less provision for uncollectible

 

 

 

    accounts of $52,305 in 2009 and $43,275 in 2008

591,469 

 

698,755 

  Unbilled revenues

164,472 

 

218,440 

  Fuel, materials and supplies - current

281,409 

 

300,049 

  Marketable securities - current

63,887 

 

78,452 

  Derivative assets - current

19,270 

 

31,373 

  Prepayments and other

110,121 

 

88,679 

 

1,479,605 

 

1,505,564 

 

 

 

 

Property, Plant and Equipment:

 

 

 

  Electric utility

9,563,493 

 

9,219,351 

  Gas utility

1,070,950 

 

1,043,687 

  Other

288,918 

 

290,156 

 

10,923,361 

 

10,553,194 

    Less:  Accumulated depreciation: $2,731,763 for electric

 

 

 

              and gas utility and $129,755 for other in 2009;

 

 

 

              $2,610,479 for electric and gas utility and

 

 

 

              $159,639 for other in 2008

2,861,518 

 

2,770,118 

 

8,061,843 

 

7,783,076 

  Construction work in progress

561,218 

 

424,800 

 

8,623,061 

 

8,207,876 

 

 

 

 

Deferred Debits and Other Assets:

 

 

 

  Regulatory assets

3,170,566 

 

3,502,606 

  Goodwill

287,591 

 

287,591 

  Marketable securities - long-term

55,351 

 

30,757 

  Derivative assets - long-term

217,780 

 

241,814 

  Other

172,380 

 

212,272 

 

3,903,668 

 

4,275,040 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

$          14,006,334 

 

$          13,988,480 

 

 

 

 

 

 

 

 

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

 

 




2






NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

September 30,

 

December 31,

(Thousands of Dollars)  

2009

 

2008

 

 

LIABILITIES AND CAPITALIZATION

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

  Notes payable to banks

$               325,234 

 

$               618,897 

  Long-term debt - current portion

66,286 

 

54,286 

  Accounts payable

410,125 

 

678,614 

  Accrued taxes

73,802 

 

12,527 

  Accrued interest

89,165 

 

69,818 

  Derivative liabilities - current

56,811 

 

100,919 

  Other

173,167 

 

168,401 

 

1,194,590 

 

1,703,462 

 

 

 

 

Rate Reduction Bonds

503,303 

 

686,511 

 

 

 

 

Deferred Credits and Other Liabilities:

 

 

 

  Accumulated deferred income taxes

1,338,979 

 

1,223,461 

  Accumulated deferred investment tax credits

22,952 

 

25,371 

  Deferred contractual obligations

173,451 

 

193,016 

  Regulatory liabilities

529,259 

 

592,540 

  Derivative liabilities - long-term

858,306 

 

912,426 

  Accrued pension

740,421 

 

740,930 

  Accrued postretirement benefits

224,039 

 

240,371 

  Other

426,388 

 

430,718 

 

4,313,795 

 

4,358,833 

 

 

 

 

Capitalization:

 

 

 

  Long-Term Debt

4,345,028 

 

4,103,162 

 

 

 

 

  Noncontrolling Interest in Consolidated Subsidiary:

 

 

 

    Preferred stock not subject to mandatory redemption

116,200 

 

116,200 

 

 

 

 

  Common Shareholders' Equity:

 

 

 

    Common shares, $5 par value - authorized

 

 

 

      225,000,000 shares; 195,400,618 shares issued

 

 

 

      and 175,435,375 shares outstanding in 2009 and

 

 

 

      176,212,275 shares issued and 155,834,361 shares

 

 

 

      outstanding in 2008

977,003 

 

881,061 

    Capital surplus, paid in

1,758,109 

 

1,475,006 

    Deferred contribution plan - employee stock ownership plan

(5,927)

 

(15,481)

    Retained earnings

1,203,603 

 

1,078,594 

    Accumulated other comprehensive loss

(37,767)

 

(37,265)

    Treasury stock, 19,708,136 shares in 2009 and 2008

(361,603)

 

(361,603)

  Common Shareholders' Equity

3,533,418 

 

3,020,312 

Total Capitalization

7,994,646 

 

7,239,674 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Capitalization

$          14,006,334 

 

$          13,988,480 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 



3






NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(Thousands of Dollars, except share information)

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$          1,306,173 

 

$        1,506,897 

 

$          4,124,087 

 

$          4,352,209 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

  Operation -

 

 

 

 

 

 

 

     Fuel, purchased and net interchange power

611,632 

 

801,050 

 

2,034,151 

 

2,286,066 

     Other

250,296 

 

232,222 

 

732,562 

 

755,306 

  Maintenance

61,609 

 

71,287 

 

166,812 

 

198,892 

  Depreciation

77,074 

 

69,717 

 

231,825 

 

205,792 

  Amortization of regulatory assets, net

10,542 

 

61,386 

 

19,194 

 

132,186 

  Amortization of rate reduction bonds

56,669 

 

53,132 

 

163,871 

 

154,366 

  Taxes other than income taxes

75,798 

 

69,026 

 

216,651 

 

200,133 

       Total operating expenses

1,143,620 

 

1,357,820 

 

3,565,066 

 

3,932,741 

Operating Income

162,553 

 

149,077 

 

559,021 

 

419,468 

 

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

 

 

  Interest on long-term debt

55,733 

 

53,111 

 

168,191 

 

142,333 

  Interest on rate reduction bonds

8,657 

 

12,207 

 

28,889 

 

38,910 

  Other interest

5,245 

 

5,579 

 

8,490 

 

18,355 

       Interest expense, net

69,635 

 

70,897 

 

205,570 

 

199,598 

Other Income, Net

9,490 

 

17,682 

 

26,081 

 

41,610 

Income Before Income Tax Expense

102,408 

 

95,862 

 

379,532 

 

261,480 

Income Tax Expense

36,230 

 

21,783 

 

130,047 

 

68,381 

Net Income

66,178 

 

74,079 

 

249,485 

 

193,099 

Net Income Attributable to Noncontrolling

 

 

 

 

 

 

 

  Interest:

 

 

 

 

 

 

 

  Preferred dividends of subsidiary

1,390 

 

1,390 

 

4,169 

 

4,169 

Net Income Attributable to Controlling Interest

$               64,788 

 

$             72,689 

 

$             245,316 

 

$             188,930 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

$                   0.37 

 

$                 0.47 

 

$                   1.43 

 

$                   1.22 

 

 

 

 

 

 

 

 

Fully Diluted Earnings Per Common Share

$                   0.37 

 

$                 0.47 

 

$                   1.43 

 

$                   1.21 

 

 

 

 

 

 

 

 

Dividends Declared Per Common Share

$                   0.24 

 

$                 0.21 

 

$                   0.71 

 

$                   0.61 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Basic

175,358,776 

 

155,607,201 

 

170,958,396 

 

155,456,606 

 

 

 

 

 

 

 

 

  Fully Diluted

175,995,506 

 

156,097,641 

 

171,532,913 

 

155,904,871 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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




4






NORTHEAST UTILITIES AND SUBSIDIARIES

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

(Unaudited)

 

 

 

 

Nine Months Ended September 30,

 (Thousands of Dollars)

2009

 

2008

 

 

 

 

Operating Activities:

 

 

 

Net income

$               249,485 

 

$               193,099 

Adjustments to reconcile net income to net cash

 

 

 

 flows provided by operating activities:

 

 

 

Bad debt expense

31,519 

 

21,341 

Depreciation

231,825 

 

205,792 

Deferred income taxes

77,617 

 

31,125 

Pension and PBOP expense/(income), net of capitalized portion, and contributions

10,197 

 

(12,642)

Allowance for equity funds used during construction

(6,162)

 

(23,546)

Regulatory overrecoveries/(refunds and underrecoveries), net

42,677 

 

(97,888)

Amortization/(deferral) of recoverable energy costs

1,842 

 

(5,898)

Amortization of regulatory assets, net

19,194 

 

132,186 

Amortization of rate reduction bonds

163,871 

 

154,366 

Deferred contractual obligations

(20,816)

 

(25,604)

Derivative assets and liabilities

(18,519)

 

(32,369)

Other

13,493 

 

(2,796)

Changes in current assets and liabilities:

 

 

 

Receivables and unbilled revenues, net

122,700 

 

(10,356)

Investments in securitizable assets

 

(25,787)

Fuel, materials and supplies

18,900 

 

(59,554)

Other current assets

(7,490)

 

(18,962)

Taxes receivable/accrued

59,641 

 

64,425 

Accounts payable

(242,179)

 

(58,594)

Other current liabilities

13,335 

 

(2,063)

Net cash flows provided by operating activities

761,130 

 

426,275 

 

 

 

 

Investing Activities:

 

 

 

Investments in property and plant

(634,446)

 

(951,831)

Proceeds from sales of marketable securities

182,131 

 

195,445 

Purchases of marketable securities

(183,814)

 

(197,453)

Other investing activities

4,298 

 

3,230 

Net cash flows used in investing activities

(631,831)

 

(950,609)

 

 

 

 

Financing Activities:

 

 

 

Issuance of common shares

388,529 

 

5,002 

Cash dividends on common shares

(120,647)

 

(95,824)

Cash dividends on preferred stock of subsidiary

(4,169)

 

(4,169)

(Decrease)/increase in short-term debt

(293,663)

 

363,187 

Issuance of long-term debt

312,000 

 

660,000 

Retirements of long-term debt

(54,286)

 

(154,286)

Retirements of rate reduction bonds

(183,208)

 

(174,091)

Financing fees

(15,331)

 

(6,234)

Other financing activities

637 

 

(1,537)

Net cash flows provided by financing activities

29,862 

 

592,048 

Net increase in cash and cash equivalents

159,161 

 

67,714 

Cash and cash equivalents - beginning of period

89,816 

 

15,104 

Cash and cash equivalents - end of period

$               248,977 

 

$                 82,818 

 

 

 

 

The accompanying notes are an integral part of these unaudited 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



COMBINED 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 combined Quarterly Report on Form 10-Q, the first and second quarter 2009 combined Quarterly Reports on Form 10-Q, and the combined Annual Report 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 was filed with the SEC as part of the Northeast Utilities and subsidiaries combined 2008 Annual Report on Form 10-K (NU 2008 Form 10-K).  The accompanying unaudited 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 as of September 30, 2009 and December 31, 2008, the results of operations for the three and nine months ended September 30, 2009 and 2008, and cash flows for the nine months ended September 30, 2009 and 2008.  The results of operations for the three months ended September 30, 2009 and 2008, and the results of operations and cash flows for the nine months ended September 30, 2009 and 2008, are not necessarily indicative of the results expected for a full year.  


The unaudited condensed consolidated financial statements of NU, CL&P, PSNH and WMECO include the accounts of all their respective subsidiaries.  Intercompany transactions have been eliminated in consolidation.  


The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.


In accordance with Financial Accounting Standards Board (FASB) guidance on noncontrolling interests in consolidated financial statements effective January 1, 2009, the Preferred stock of CL&P, which is not owned by NU or its consolidated subsidiaries and is not subject to mandatory redemption, has been presented as a noncontrolling interest in CL&P in the accompanying unaudited condensed consolidated financial statements of NU.  The Preferred stock of CL&P is considered to be temporary equity and has been classified between liabilities and permanent shareholders' equity on the accompanying unaudited condensed consolidated balance sheets of NU and CL&P due to a provision in CL&P's certificate of incorporation that grants preferred stockholders the right to elect a majority of CL&P's board of directors while certain conditions exist, such as if preferred dividends are in arrears for one year.  The Net income reported in the accompanying unaudited condensed consolidated statements of income and cash flows represents consolidated net income prior to apportionment to noncontrolling interests, which is represented by dividends on preferred stock of CL&P.  


The included presentation and disclosure requirements effective January 1, 2009 have been applied retrospectively to the unaudited condensed consolidated balance sheet as of December 31, 2008, the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2008, the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2008, and to consolidated comprehensive income for the three and nine months ended September 30, 2008 included in Note 6, "Comprehensive Income," to the unaudited condensed consolidated financial statements.  For the nine months ended September 30, 2009 and 2008, there was no change in NU parent's 100 percent ownership of common equity of CL&P.


NU has certain other reclassifications of prior period data included in the accompanying unaudited condensed consolidated balance sheets for PSNH and WMECO and the unaudited condensed consolidated statements of cash flows for all companies presented, which have been made to conform with the current period's presentation.  




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B.

Accounting Standards Issued But Not Yet Adopted

In June 2009, the FASB issued guidance on the consolidation of variable interest entities (VIEs) that requires an enterprise to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a VIE.  This analysis identifies the party that must consolidate a VIE, referred to as the primary beneficiary, as the enterprise that has both of the following characteristics:  (a) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (b) the obligation to absorb losses of or receive benefits from the entity that could potentially be significant to the VIE.  The guidance eliminates the quantitative approach for determining the primary beneficiary of a VIE, which was based on identifying which party absorbs the majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both.  This guidance is effective as of January 1, 2010, for interim and annual reporting periods beginning in 2010.  Earlier application is prohibited.  NU, including CL&P, PSNH, and WMECO, does not currently consolidate any VIEs with which the company is associated, and management does not expect to change the accounting for these VIEs as a result of implementing this guidance.


In August 2009, the FASB issued accounting guidance on measuring liabilities at fair value, which is effective in the fourth quarter of 2009 and provides guidance on how to measure the fair value of a liability when a quoted price for the liability is not available.  The guidance reaffirms existing guidance requiring that fair values reflect the price that NU would expect to pay to transfer the liabilities in the current market.  The guidance is not expected to affect the financial statements of NU, CL&P, PSNH, or WMECO upon adoption.


C.

Accounting Standards Recently Adopted

On January 1, 2009, NU, including CL&P, PSNH and WMECO, adopted fair value measurement guidance for nonrecurring fair value measurements of nonfinancial assets and liabilities, including asset retirement obligations (AROs) and goodwill and other impairment analyses.  NU adopted the guidance for fair value measurements of financial assets and liabilities effective January 1, 2008.  Implementation of the guidance for nonfinancial assets and liabilities did not affect the accompanying unaudited condensed consolidated financial statements.  Application of this guidance to the Yankee Gas Services Company (Yankee Gas) goodwill impairment analysis, which is performed as of October 1st of each year, is not expected to have a material effect on the Company's financial position or results of operations.  


In the second quarter of 2009, NU, including WMECO, adopted guidance related to the recognition and presentation of other-than-temporary impairments.  This guidance changes the indicators for determining if unrealized losses on debt securities (the excess of amortized cost over fair value) should be recorded in Net income as other-than-temporary impairments.  Beginning in the second quarter of 2009, other-than-temporary impairments of debt securities in NU's Trust Under Supplemental Executive Retirement Plan (NU supplemental benefit trust) are reflected in the Company's unaudited condensed consolidated statement of income if the Company either intends to sell the security or would more likely than not be required to sell the security before recovery to its amortized cost, or if the Company does not expect to recover the amortized cost as a result of a credit loss.  For securities that the Company does not intend to sell and it is not more likely than not that it will be required to sell before recovery, only the credit loss component of an impairment is recognized in Net income, and the remainder is recognized in Accumulated other comprehensive income/(loss).  NU recorded an after-tax cumulative effect of a change in accounting principle of $0.7 million as an increase to the April 1, 2009 balance of Retained earnings with an offset to Accumulated other comprehensive income/(loss) relating to the reversal of unrealized losses previously recorded in Net income on debt securities held in the NU supplemental benefit trust, which did not meet the criteria described above.  The guidance had no impact on unrealized losses in WMECO's spent nuclear fuel trust as unrealized losses including impairments are recorded in Deferred debits and other assets - other on the accompanying unaudited condensed consolidated balance sheet due to the regulatory accounting treatment of this trust.  


In the second quarter of 2009, NU, including CL&P, PSNH and WMECO, adopted guidance which clarifies how to estimate fair value when the volume and level of activity for an asset or liability have significantly decreased and how to identify transactions that are not orderly.  This guidance  requires additional disclosures related to fair value measurements (refer to Note 1D, "Summary of Significant Accounting Policies - Fair Value Measurements," and Note 3, "Fair Value Measurements," to the unaudited condensed consolidated financial statements).  Implementation of this guidance did not affect the companies' valuation of assets or liabilities that are measured at fair value.  


In the second quarter of 2009, the FASB issued guidance regarding subsequent events, which incorporates into FASB authoritative literature accounting guidance that originated as auditing standards about events or transactions that occur after the balance sheet date but before financial statements are issued.  This guidance, which was effective in the second quarter, retains the auditing standard requirements to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the balance sheet date and to disclose but not recognize in the financial statements subsequent events that provide evidence about conditions that arose after the balance sheet date but before the financial statements are issued.  NU is required to disclose the date through which it has evaluated subsequent events.  In preparing the accompanying unaudited condensed consolidated financial statements, NU has evaluated events subsequent to September 30, 2009 through the issuance of the financial statements on November 6, 2009 and NU has not identified any events for recognition or disclosure.  



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D.

Fair Value Measurements

The Company measures its derivative instruments that are not designated as normal purchases or normal sales and marketable securities at fair value.  


Fair Value Hierarchy:  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 terms of the contracts.  Inputs used in fair value measurements are 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 valuation techniques and inputs used in NU's fair value measurements are as follows:


Derivative instruments:  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 used 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. (NU Enterprises) remaining wholesale marketing contract and its related supply contracts, CL&P's contracts for differences (CfDs), CL&P's contracts with certain independent power producers (IPPs), PSNH and Yankee Gas physical options and CL&P and PSNH 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 PSNH forward contracts to purchase energy and interest rate swap agreements.  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 unaudited condensed consolidated financial statements.


Marketable securities:  NU and WMECO hold 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 for identical investments are available and used in NU's fair value measurements.


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.  



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For further information see Note 3, "Fair Value Measurements," and Note 10, "Marketable Securities," to the unaudited condensed consolidated financial statements.


There were no changes to the valuation methodologies for derivative instruments or marketable securities for the three or nine months ended September 30, 2009.  


E.

Regulatory Accounting

The accounting policies of the regulated companies, as defined below, 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.  


The transmission and distribution segments of CL&P, PSNH (including its generation business) and WMECO, along with Yankee Gas' distribution segment (collectively, the regulated companies), continue to be rate-regulated on a cost-of-service basis.  Management believes it is probable that NU's regulated companies will recover their respective investments in long-lived assets, including regulatory assets.  All material net regulatory assets are earning an equity return, except for securitized regulatory assets, the majority of deferred benefit costs and regulatory assets offsetting regulated company derivative liabilities, which are not supported by equity.  Amortization and deferrals of regulatory assets/(liabilities) are included on a net basis in Amortization of regulatory assets/(liabilities), net on the accompanying unaudited condensed consolidated statements of income.  


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


 

 

As of September 30, 2009

 

As of December 31, 2008

(Millions of Dollars)

 

NU

 

NU

Deferred benefit costs

 

$

1,091.3 

 

$

1,140.9 

Regulatory assets offsetting derivative
  liabilities

 

 


770.7 

 

 


844.2 

Securitized assets

 

 

493.5 

 

 

677.4 

Income taxes, net

 

 

353.6 

 

 

355.4 

Unrecovered contractual obligations

 

 

154.4 

 

 

169.1 

CL&P undercollections

 

 

58.4 

 

 

75.2 

Storm cost deferral

 

 

62.8 

 

 

19.3 

Other regulatory assets

 

 

185.9 

 

 

221.1 

Totals

 

$

3,170.6 

 

$

3,502.6 


 

 

As of September 30, 2009

 

As of December 31, 2008

(Millions of Dollars)

 

CL&P

 

PSNH

 

WMECO

 

CL&P

 

PSNH

 

WMECO

Deferred benefit costs

 

$

515.4 

 

$

133.8 

 

$

109.4 

 

$

537.7 

 

$

142.9 

 

$

113.5 

Regulatory assets offsetting
  derivative liabilities

 

 


719.4 

 

 


50.8 

 

 


 

 


751.9 

 

 


92.1 

 

 


Securitized assets

 

 

240.1 

 

 

192.3 

 

 

61.1 

 

 

377.8 

 

 

227.6 

 

 

72.0 

Income taxes, net

 

 

301.0 

 

 

20.3 

 

 

17.7 

 

 

306.8 

 

 

16.1 

 

 

20.7 

Unrecovered contractual obligations

 

 

121.5 

 

 

 

 

32.9 

 

 

132.6 

 

 

 

 

36.5 

CL&P undercollections

 

 

58.4 

 

 

 

 

 

 

75.2 

 

 

 

 

Storm cost deferral

 

 

 

 

52.9 

 

 

9.9 

 

 

 

 

8.2 

 

 

11.1 

WMECO recoverable nuclear costs

 

 

 

 

 

 

1.8 

 

 

 

 

 

 

5.0 

Other regulatory assets

 

 

64.2 

 

 

56.6 

 

 

15.9 

 

 

92.1 

 

 

63.0 

 

 

9.6 

Totals

 

$

2,020.0 

 

$

506.7 

 

$

248.7 

 

$

2,274.1 

 

$

549.9 

 

$

268.4 


Additionally, the regulated companies had $18 million ($0.1 million for PSNH, $9 million for CL&P, and $8.9 million for WMECO) and $68.3 million ($62.7 million for PSNH and $5.6 million for CL&P) of regulatory costs as of September 30, 2009 and December 31, 2008, respectively, which were included in Deferred debits and other assets - other on the accompanying unaudited condensed consolidated balance sheets.  These amounts represent incurred 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.  As of December 31, 2008, $62.7 million related to costs incurred at PSNH for the December 2008 storm restorations that met the New Hampshire Public Utilities Commission (NHPUC) specified criteria for deferral to a major storm cost reserve.  In July 2009, the NHPUC concluded in a temporary rate order that PSNH could begin recovery of the storm costs.  The NHPUC is currently reviewing these costs in connection with the permanent rate case filing.  These costs are classified as a regulatory asset as of September 30, 2009.


Included in NU's other regulatory assets are the regulatory assets associated with the accounting for conditional AROs totaling $45.2 million ($25.1 million for CL&P, $14.4 million for PSNH, and $3 million for WMECO) as of September 30, 2009 and $42.3 million ($23.1 million for CL&P, $13.9 million for PSNH, and $2.8 million for WMECO) as of December 31, 2008.  Management believes that recovery of the conditional ARO regulatory assets is probable.  




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


 

 

As of September 30, 2009

 

As of December 31, 2008

(Millions of Dollars)

 

NU

 

NU

Cost of removal

 

$

215.4 

 

$

226.0 

Regulatory liabilities offsetting
  derivative assets

 

 


118.9 

 

 


137.8 

Regulatory overcollections

 

 

64.4 

 

 

75.4 

CL&P AFUDC transmission incentive

 

 

49.4 

 

 

47.6 

PSNH ES deferral

 

 

24.8 

 

 

33.0 

Pension and PBOP liabilities - Yankee
  Gas acquisition

 

 


15.6 

 

 


17.6 

Overrecovered gas costs

 

 

14.2 

 

 

16.9 

Other regulatory liabilities

 

 

26.6 

 

 

38.2 

Totals

 

$

529.3 

 

$

592.5 


 

 

As of September 30, 2009

 

As of December 31, 2008

(Millions of Dollars)

 

CL&P

 

PSNH

 

WMECO

 

CL&P

 

PSNH

 

WMECO

Cost of removal

 

$

85.6 

 

$

62.4 

 

$

17.0 

 

$

91.2 

 

$

64.7 

 

$

19.2 

Regulatory liabilities offsetting derivative assets

 

 

117.8 

 

 

1.1 

 

 

 

 

131.3 

 

 

4.6 

 

 

Regulatory  overcollections

 

 

54.6 

 

 

6.2 

 

 

3.6 

 

 

69.5 

 

 

4.6 

 

 

1.3 

CL&P AFUDC transmission incentive

 

 

49.4 

 

 

 

 

 

 

47.6 

 

 

 

 

PSNH ES deferral

 

 

 

 

24.8 

 

 

 

 

 

 

33.0 

 

 

WMECO provision for rate refunds

 

 

 

 

 

 

1.3 

 

 

 

 

 

 

1.3 

WMECO transition charge overcollections

 

 

 

 

 

 

 

 

 

 

 

 

5.7 

WMECO pension/PBOP tracker

 

 

 

 

 

 

0.1 

 

 

 

 

 

 

2.0 

Other regulatory liabilities

 

 

18.0 

 

 

4.9 

 

 

1.6 

 

 

23.9 

 

 

4.5 

 

 

0.3 

Totals

 

$

325.4 

 

$

99.4 

 

$

23.6 

 

$

363.5 

 

$

111.4 

 

$

29.8 


F.

Allowance for Funds Used During Construction

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, net on the accompanying unaudited condensed consolidated statements of income.


 

For the Three Months Ended

 

For the Nine Months Ended

 

September 30, 2009

 

September 30, 2008

 

September 30, 2009

 

September 30, 2008

(Millions of Dollars, except percentages)

NU

 

NU

 

NU

 

NU

Borrowed funds

$

1.2   

 

$

4.3   

 

$

4.7   

 

$

13.5   

Equity funds

 

2.8   

 

 

8.5   

 

 

6.2   

 

 

23.5   

Totals

$

4.0   

 

$

12.8   

 

$

10.9   

 

$

37.0   

Average AFUDC rates

 

6.4%

 

 

8.4%

 

 

6.2%

 

 

8.3%


 

 

For the Three Months Ended

 

 

September 30, 2009

 

September 30, 2008

(Millions of Dollars, except percentages)

CL&P

 

PSNH

 

WMECO

 

CL&P

 

PSNH

 

WMECO

Borrowed funds

 

$

0.4   

 

$

0.8   

 

$

-   

 

$

3.3   

 

$

0.6   

 

$

0.3   

Equity funds

 

 

1.9   

 

 

0.9   

 

 

-   

 

 

7.0   

 

 

0.9   

 

 

0.5   

Totals

 

$

2.3   

 

$

1.7   

 

$

-   

 

$

10.3   

 

$

1.5   

 

$

0.8   

Average AFUDC rates

 

 

8.2%

 

 

6.1%

 

 

0.8%

*

 

8.8%

 

 

7.9%

 

 

8.4%


*

The AFUDC rate applies to WMECO's portion of construction work in progress (CWIP) that is currently recovered in rate base, as further described below.


 

 

For the Nine Months Ended

 

 

September 30, 2009

 

September 30, 2008

(Millions of Dollars, except percentages)

CL&P

 

PSNH

 

WMECO

 

CL&P

 

PSNH

 

WMECO

Borrowed funds

 

$

1.9   

 

$

2.4   

 

$

0.2   

 

$

10.0   

 

$

2.2   

 

$

0.7   

Equity funds

 

 

3.5   

 

 

2.5   

 

 

-   

 

 

19.4   

 

 

3.2   

 

 

0.9   

Totals

 

$

5.4   

 

$

4.9   

 

$

0.2   

 

$

29.4   

 

$

5.4   

 

$

1.6   

Average AFUDC rates

 

 

6.8%

 

 

6.7%

 

 

2.0%

 

 

8.6%

 

 

7.6%

 

 

7.6%




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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 average eligible CWIP amounts to calculate AFUDC.  AFUDC is recorded on 100 percent of CL&P's and WMECO's CWIP for their New England East-West Solutions projects, all of which is being reserved as a regulatory liability to reflect current rate base recovery for 100 percent of the CWIP as a result of FERC-approved transmission incentives.


G.

Other Income, Net

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


NU

 

For the Three Months Ended

 

For the Nine Months Ended

(Million of Dollars)

 

September 30, 2009

 

September 30, 2008

 

September 30, 2009

 

September 30, 2008

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Interest income

 

$

0.4 

 

$

10.1 

 

$

4.4 

 

$

10.1 

  Investment income

 

 

5.5 

 

 

2.3 

 

 

9.6 

 

 

6.1 

  AFUDC - equity funds

 

 

2.8 

 

 

8.5 

 

 

6.2 

 

 

23.5 

  Energy Independence Act incentives

 

 

0.5 

 

 

0.5 

 

 

4.9 

 

 

9.4 

  C&LM incentives

 

 

 

 

0.1 

 

 

0.5 

 

 

 - 

  Other

 

 

0.3 

 

 

0.2 

 

 

0.7 

 

 

0.8 

Total Other Income

 

 

9.5 

 

 

21.7 

 

 

26.3 

 

 

49.9 

Other Loss:

 

 

 

 

 

 

 

 

 

 

 

 

  Investment loss

 

 

 

 

(4.0)

 

 

 

 

(7.8)

  C&LM costs

 

 

 

 

 

 

 

 

(0.3)

  Rental expense

 

 

 

 

 

 

(0.2)

 

 

(0.2)

Total Other Loss

 

 

 

 

(4.0)

 

 

(0.2)

 

 

(8.3)

Total Other Income, Net

 

$

9.5 

 

$

17.7 

 

$

26.1 

 

$

41.6 


CL&P

 

For the Three Months Ended

 

For the Nine Months Ended

(Millions of Dollars)

 

September 30, 2009

 

September 30, 2008

 

September 30, 2009

 

September 30, 2008

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Interest income

 

$

0.7 

 

$

6.4 

 

$

2.6 

 

$

6.4 

  Investment income

 

 

3.5 

 

 

1.7 

 

 

5.7 

 

 

5.0 

  AFUDC - equity funds

 

 

1.9 

 

 

7.0 

 

 

3.5 

 

 

19.4 

  Energy Independence Act incentives

 

 

0.6 

 

 

0.5 

 

 

4.9 

 

 

9.4 

  C&LM incentives

 

 

 

 

 

 

0.3 

 

 

  Other

 

 

0.4 

 

 

0.2 

 

 

1.0 

 

 

0.5 

Total Other Income

 

 

7.1 

 

 

15.8 

 

 

18.0 

 

 

40.7 

Other Loss:

 

 

 

 

 

 

 

 

 

 

 

 

  Rental expense

 

 

 

 

 

 

(0.1)

 

 

  Investment loss

 

 

 

 

(2.7)

 

 

 

 

(5.3)

  C&LM costs

 

 

 

 

 

 

 

 

(0.6)

Total Other Loss

 

 

 

 

(2.7)

 

 

(0.1)

 

 

(5.9)

Total Other Income, Net

 

$

7.1 

 

$

13.1 

 

$

17.9 

 

$

34.8 


PSNH

 

For the Three Months Ended

 

For the Nine Months Ended

(Millions of Dollars)

 

September 30, 2009

 

September 30, 2008

 

September 30, 2009

 

September 30, 2008

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Interest income

 

$

0.4 

 

$

1.9 

 

$

2.2 

 

$

1.9 

  Investment income

 

 

0.8 

 

 

0.5 

 

 

1.4 

 

 

1.4 

  AFUDC - equity funds

 

 

0.9 

 

 

0.9 

 

 

2.5 

 

 

3.2 

  Other

 

 

0.1 

 

 

 

 

0.4 

 

 

0.1 

Total Other Income

 

 

2.2 

 

 

3.3 

 

 

6.5 

 

 

6.6 

Investment loss

 

 

 

 

(0.6)

 

 

 

 

(1.3)

Total Other Income, Net

 

$

2.2 

 

$

2.7 

 

$

6.5 

 

$

5.3 




11





WMECO

 

For the Three Months Ended

 

For the Nine Months Ended

(Millions of Dollars)

 

September 30, 2009

 

September 30, 2008

 

September 30, 2009

 

September 30, 2008

Other Income:  

 

 

 

 

 

 

 

 

 

 

 

 

  Interest income

 

$

(0.6)

 

$

1.1 

 

$

(0.4)

 

$

1.1 

  Investment income

 

 

0.8 

 

 

0.2 

 

 

1.2 

 

 

0.9 

  AFUDC - equity funds

 

 

 

 

0.5 

 

 

 

 

0.9 

  Other

 

 

 

 

 

 

0.2 

 

 

  C&LM incentives

 

 

 

 

0.1 

 

 

0.2 

 

 

0.3 

Total Other Income

 

 

0.2 

 

 

1.9 

 

 

1.2 

 

 

3.2 

Other Loss:  

 

 

 

 

 

 

 

 

 

 

 

 

  Investment loss

 

 

 

 

(0.6)

 

 

 

 

(1.1)

  Rental expense

 

 

 

 

 

 

(0.1)

 

 

Total other loss

 

 

 

 

(0.6)

 

 

(0.1)

 

 

(1.1)

Total Other Income, Net

 

$

0.2 

 

$

1.3 

 

$

1.1 

 

$

2.1 


Investment income includes equity in earnings of regional nuclear generating and transmission companies of $0.4 million and $0.4 million for NU ($0.1 million in both periods for CL&P and de minimis amounts for PSNH and WMECO) for the three months ended September 30, 2009 and 2008, respectively, and $1.4 million in both periods for NU ($0.3 million in both periods for CL&P, $0.1 million in both periods for WMECO and de minimis amounts for PSNH) for the nine months ended September 30, 2009 and 2008, respectively.  Equity in earnings relates to the Company's investments, including CL&P, PSNH and WMECO's investments, in Connecticut Yankee Atomic Power Company (CYAPC), Maine Yankee Atomic Power Company, and Yankee Atomic Electric Company, and NU's investments in two regional transmission companies.


For both the three and nine months ended September 30, 2009, NU and WMECO's interest income included a $0.7 million tax refund adjustment.  For both the three and nine months ended September 30, 2008, interest income for NU, CL&P, PSNH, and WMECO included $10.1 million, $6.4 million, $1.9 million, and $1.1 million, respectively, of interest income from other federal tax settlements.  


H.

Special Deposits and Counterparty Deposits

To the extent NU Enterprises, a wholly owned subsidiary of NU, through its wholly owned subsidiary Select Energy, Inc. (Select Energy), requires collateral from counterparties, or the counterparties require collateral from Select Energy, cash is 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 transactions with the counterparty.  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.


NU, including CL&P, PSNH, and WMECO, records special deposits and counterparty deposits posted under a master netting agreement as an offset to a derivative asset or liability if the related derivatives are recorded in a net position.  As of September 30, 2009, CL&P and Select Energy had $1 million and $0.9 million, respectively, of collateral posted under master netting agreements and netted against the fair value of the derivatives.  As of December 31, 2008, NU, including CL&P, PSNH and WMECO, had no special deposits and no counterparty collateral posted under master netting agreements netted against the fair value of derivatives.


Special deposits paid by Select Energy to unaffiliated counterparties and brokerage firms not subject to master netting agreements totaled $29.3 million and $26.3 million as of September 30, 2009 and December 31, 2008, respectively.  These amounts are recorded as Current assets and are included in Prepayments and other on the accompanying unaudited condensed consolidated balance sheets.  There were no counterparty deposits for Select Energy as of September 30, 2009 and December 31, 2008.  


NU, CL&P, PSNH and WMECO have established credit policies regarding counterparties to minimize overall credit risk.  These policies require an evaluation of potential counterparties, financial condition, collateral requirements and the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty.  These evaluations result in established credit limits prior to entering into a contract.  As of September 30, 2009 and December 31, 2008, there were no counterparty deposits for these companies.  


I.

Income Taxes

Tax Positions: In June 2009, the Internal Revenue Service (IRS) completed its audit of the federal tax years 2005 through 2007, bringing closure to, and effective settlement of, issues concerning the timing of certain deductions through 2007 for NU.  For the nine months ended September 2009, the audit closure reduced pre-tax interest expense by $5.4 million ($3.1 million for CL&P, $1.6 million for PSNH, and $0.5 million for WMECO), and a $1 million reduction to income tax expense.  Management estimates that resolution of this audit decreases NU's unrecognized tax benefits by approximately $32 million ($16 million for CL&P, $12 million for PSNH, and $3 million for WMECO).



12





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.  Management estimates that potential resolutions could result in a $1 million to $34 million decrease in unrecognized tax benefits for NU ($1 million to $14 million for CL&P and a de minimis impact for PSNH and WMECO).  


J.

Other Taxes

Certain excise taxes levied by state or local governments are collected by CL&P and Yankee Gas from their respective customers.  These excise taxes are shown on a gross basis with collections in revenues and payments in expenses.  For the three and nine months ended September 30, 2009, NU gross receipts taxes, franchise taxes and other excise taxes of $33.6 million and $103.4 million, respectively, ($31.7 million and $90.4 million, respectively, for CL&P) were included in Operating revenues and Taxes other than income taxes on the accompanying unaudited condensed consolidated statements of income.  For the three and nine months ended September 30, 2008, these amounts totaled $33.9 million and $92.4 million, respectively ($31.4 million and $78.4 million, respectively, for CL&P).  Certain sales taxes are also collected by CL&P, WMECO, and Yankee Gas from their respective customers as agents for state and local governments and are recorded on a net basis with no impact on the accompanying unaudited condensed consolidated statements of income.   


2.

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

Derivative contracts that meet the definition of and are designated as "normal purchases or normal sales" (normal) are recognized in Operating revenues or Operating expenses, as applicable, as electricity or natural gas is delivered.  


Derivative contracts that are not designated as accounting hedges, or as normal, are recorded at fair value as current or long-term derivative assets or liabilities.  Changes in fair values of NU Enterprises' derivatives are included in Net income.  For the regulated companies, including CL&P, PSNH and Yankee Gas, regulatory assets or liabilities are recorded for the changes in fair values of derivatives, as these contracts are part of current regulated operating costs, or have an allowed recovery mechanism, and management believes that these costs will continue to be recovered from or refunded to customers in cost-of-service, regulated rates.  See below for discussion of "Derivatives designated as hedging instruments."


CL&P, PSNH, WMECO and Yankee Gas are exposed to the volatility of the prices of energy and energy related products in procuring energy supply for their customers.  The costs associated with supplying energy to customers are recoverable through customer rates.  The Company manages the risks associated with the price volatility of energy and energy related products through the use of derivative contracts, many of which are accounted for as normal, (for WMECO all derivative contracts are accounted for as normal) and the use of nonderivative contracts.


CL&P mitigates the risks associated with the price volatility of energy and energy-related products through the use of standard or last resort service contracts, which fix the price of electricity purchased for customers for periods of time ranging from three months to three years and are accounted for as normal.  CL&P has entered into derivatives, including FTR contracts and bilateral basis swaps, to manage the risk of congestion costs associated with its standard offer and last resort service contracts.  As required by regulation, CL&P has also entered into derivative and nonderivative contracts for the purchase of energy and energy-related products and contracts related to capacity.  While the risks managed by these contracts are regional congestion costs and capacity price risks that are not specific to CL&P, Connecticut's electric distribution companies, including CL&P, are required to enter into these contracts.  The derivative contracts not accounted for as normal are accounted for at fair value.  Management believes any costs or benefits from these contracts are recoverable from or refunded to CL&P's customers, therefore any changes in fair value are recorded as Regulatory assets and Regulatory liabilities.


WMECO mitigates the risks associated with the volatility of the prices of energy and energy-related products in procuring energy supply for its customers through the use of default service contracts, which fix the price of electricity purchased for customers for periods of time ranging from three months to three years and are accounted for as normal.  


PSNH mitigates the risks associated with the volatility of energy prices in procuring energy supply for its customers through its generation facilities and the use of derivative contracts, including energy forward contracts, options and FTRs.  PSNH enters into these contracts in order to stabilize electricity prices for customers.  The derivative contracts not accounted for as normal are accounted for at fair value.  Management believes any costs or benefits from these contracts are recoverable from or refunded to PSNH's customers, therefore any changes in fair value are recorded as Regulatory assets and Regulatory liabilities.


Yankee Gas mitigates the risks associated with supply availability and volatility of natural gas prices through the use of storage facilities and long-term agreements to purchase gas supply for customers that include nonderivative contracts and contracts that are accounted for as normal.  Yankee Gas also manages price risk through the use of options contracts.  The derivative contracts not accounted for as normal are accounted for at fair value, and because management believes any costs or benefits from these contracts are recoverable from or refundable to Yankee Gas' customers, any changes in fair value are recorded as Regulatory assets and Regulatory liabilities.



13





NU Enterprises, through Select Energy, has one remaining fixed price forward sales contract that was part of its wholesale energy marketing business.  NU Enterprises mitigates the price risk associated with this contract through the use of forward purchase contracts.  NU Enterprises' derivative contracts are accounted for at fair value, and changes in their fair values are recorded in Operating expenses.  


NU is also exposed to interest rate risk associated with its long-term debt.  From time to time, the Company enters into forward starting interest rate swaps, accounted for as cash flow hedges, to mitigate the risk of changes in interest rates when it expects to issue long-term debt.  NU parent has also entered into an interest rate swap on fixed rate long-term debt in order to manage the balance of fixed and floating rate debt.  The interest rate swap mitigating the interest rate risk associated with the fixed rate long-term debt is accounted for as a fair value hedge.


The gross fair values of derivative assets and liabilities with the same counterparty are offset and reported as net Derivative assets or Derivative liabilities, with appropriate current and long-term portions, in the accompanying unaudited condensed consolidated balance sheets.  The following tables present the gross fair values of contracts and the net amounts recorded as current or long-term Derivative assets or liabilities, by primary underlying risk exposures or purpose:


 

 

As of September 30, 2009




(Millions of Dollars)

 

Gross
Asset

 

Gross
Liability

 

Net Amount
Recorded as
Derivative
Asset

 

Gross
Asset

 



Gross
Liability

 


Cash
Collateral
Posted

 

Net Amount
Recorded as
Derivative
Liability

Derivatives not designated as hedging
instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NU Enterprises:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity sales contract and related
  price and supply risk management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Current

 

$

 

$

 

$

 

$

2.9 

 

$

(11.1)

 

$

0.9 

 

$

(7.3)

     Long-Term

 

 

 

 

 

 

 

 

4.4 

 

 

(41.6)

 

 

 

 

(37.2)

Regulated Companies:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CL&P commodity and capacity contracts
  required by regulation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Current

 

 

16.0 

 

 

(4.4)

 

 

11.6 

 

 

 

 

(7.4)

 

 

 

 

(7.4)

     Long-Term

 

 

252.0 

 

 

(45.0)

 

 

207.0 

 

 

 

 

(810.8)

 

 

 

 

(810.8)

Commodity price and supply risk
  management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CL&P:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Current

 

 

2.2 

 

 

 

 

2.2 

 

 

 

 

(2.0)

 

 

1.0 

 

 

(1.0)

PSNH:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Current (1)

 

 

0.6 

 

 

 

 

0.6 

 

 

 

 

(40.7)

 

 

 

 

(40.7)

     Long-Term (1)

 

 

0.5 

 

 

 

 

0.5 

 

 

 

 

(10.2)

 

 

 

 

(10.2)

Yankee Gas:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Current

 

 

 

 

 

 

 

 

 

 

(0.4)

 

 

 

 

(0.4)

     Long-Term

 

 

 

 

 

 

 

 

 

 

(0.1)

 

 

 

 

(0.1)

Derivatives designated as hedging
 instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate risk management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Current (2)

 

 

4.8 

 

 

 

 

4.8 

 

 

 

 

 

 

 

 

     Long-Term

 

 

10.3 

 

 

 

 

10.3 

 

 

 

 

 

 

 

 


(1)

On PSNH's accompanying unaudited condensed consolidated balance sheet, the current portion of the net derivative asset is shown in Prepayments and other and the long-term portion is shown in Deferred debits and other assets - other.


(2)

Amount does not include interest receivable of $5.1 million as of September 30, 2009 recorded in Prepayments and other on the accompanying unaudited condensed consolidated balance sheet.  


For further information on the fair value of derivative contracts, see Note 3, "Fair Value Measurements," to the unaudited condensed consolidated financial statements.


The following provides additional information about the derivatives included in the tables above, including volumes and cash flow information.




14




Derivatives not designated as hedging instruments

NU Enterprises' energy sales contract and related price risk management:  As of September 30, 2009, NU Enterprises had approximately 0.4 million megawatt-hours (MWh) of supply volumes remaining in its wholesale portfolio when expected sales to the New York Municipal Power Agency (an agency that is comprised of municipalities) are compared with contracted supply, both of which extend through 2013.  


CL&P energy and capacity contracts required by regulation:  CL&P has contracts with two IPPs to purchase electricity monthly in amounts aggregating approximately 1.5 million MWh per year through March 2015 under one of these contracts and 0.1 million MWh per year through December 2020 under the second contract.  CL&P also has two capacity-related CfDs to increase energy supply in Connecticut relating to one generating project that has been modified and one generating plant to be built.  The total capacity of these CfDs and two additional CfDs of The United Illuminating Company (UI) is expected to be approximately 787 megawatts (MW).  CL&P has an agreement with UI, which is also accounted for as a derivative, under which they will share the costs and benefits of the four CfDs, with 80 percent allocated to CL&P and 20 percent to UI.  The four CfDs obligate the utilities to pay/receive monthly the difference between a set capacity price and the forward capacity market price that the projects receive in the New England Independent System Operator capacity markets for periods of up to 15 years beginning in 2009.


CL&P, PSNH and Yankee Gas energy and natural gas price risk management:  As of September 30, 2009, CL&P had 0.5 million MWh and 0.4 million MWh remaining under FTRs and bilateral basis swaps, respectively, that expire by December 31, 2009 and require monthly payments or receipts.  


PSNH has electricity procurement contracts with delivery dates through 2011 to purchase an aggregate amount of 1.7 million MWh of power that is used to serve customer load and manage price risk of its electricity delivery service obligations.  These contracts are settled monthly.  PSNH also has two energy call options that it received in exchange for assigning its transmission rights in a direct current transmission line.  The options give PSNH the right to purchase 0.7 million MWh of electricity through December 2010.  In addition, PSNH has entered into FTRs to manage the risk of congestion costs associated with its electricity delivery service.  As of September 30, 2009, there were 0.4 million MWh remaining under FTRs that expire in 2009 and require monthly payments or receipts.  The purpose of the PSNH derivative contracts is to provide stable rates for customers by mitigating price uncertainties associated with the New England electricity spot market.  


As of September 30, 2009, Yankee Gas had two peaking supply option contracts to purchase up to 17 thousand MMBtu of natural gas on up to 20 days per season to manage natural gas supply price risk related to winter load obligations.  One contract for 3 thousand MMBtu expires on October 31, 2009 and the other contract for 14 thousand MMBtu expires on April 1, 2012.  Demand fees on these contracts are settled annually or seasonally and are included in Yankee Gas' Purchased Gas Adjustment clause for recovery.  


The following table presents the realized and unrealized gains/(losses) associated with derivative contracts not designated as hedging instruments for the three and nine months ended September 30, 2009:


 

 

 

 

Amount of Gain/(Loss)
Recognized on Derivative Instrument

Derivatives Not Designated
as Hedging Instruments

 

Location of Gain or Loss
Recognized on Derivative

 

Three Months Ended September 30, 2009

 

Nine Months Ended September 30, 2009

NU Enterprises:

 

 

 

(Millions of Dollars)

Energy sales contract and energy price
  risk management

 

Fuel, purchased and net interchange
 power

 


$(1.5)

 


$6.4 

Regulated Companies:

 

 

 

 

 

 

CL&P energy and capacity
  contracts required by regulation

 


Regulatory assets/liabilities

 


(31.8)

 


18.3 

Commodity price and supply risk
management:

 

 

 

 

 

 

     CL&P

 

Regulatory assets/liabilities

 

(0.9)

 

(7.9)

     PSNH

 

Regulatory assets/liabilities

 

(7.2)

 

(58.0)

     Yankee Gas

 

Regulatory assets/liabilities

 

(0.4)

 

(2.5)


For the regulated companies, monthly settlement amounts are recorded as receivables or payables and as Operating revenues or Fuel, purchased and net interchange power.  Regulatory assets/liabilities are established with no impact to Net income.


Derivatives designated as hedging instruments  

Interest Rate Risk Management:  To manage the interest rate risk characteristics of NU parent's fixed rate long-term debt, NU parent has a fixed to floating interest rate swap on its $263 million, 7.25 percent fixed rate senior notes maturing on April 1, 2012.  This interest rate swap qualified and was designated as a fair value hedge and requires semi-annual payments/receipts.  The changes in fair value of the swap and the interest component of the hedged long-term debt instrument are recorded in interest expense.  There was no



15




ineffectiveness recorded for the three and nine months ended September 30, 2009.  The cumulative changes in fair values of the swap and the Long-term debt are recorded as a Derivative asset/liability and an adjustment to Long-term debt.  Interest receivable is recorded as a reduction of Interest expense and is included in Prepayments and other.  


For the three and nine months ended September 30, 2009, the realized and unrealized gains/(losses) related to changes in fair value of the swap and Long-term debt as well as pre-tax Interest expense, recorded in Net income, were as follows:


 

 

Swap

 

Hedged Debt

(Millions of Dollars)
Income Statement Classification

 

Three Months Ended
September 30, 2009

 

Nine Months Ended
September 30, 2009

 

Three Months Ended
September 30, 2009

 

Nine Months Ended
September 30, 2009

Changes in fair value

 

$

4.0 

 

$

0.8 

 

$

(4.0)

 

$

(0.8)

Interest recorded in Net income

 

 

 

 

 

 

2.7 

 

 

6.5 


There were no cash flow hedges outstanding as of or during the three and nine month periods ended September 30, 2009 and no ineffectiveness was recorded during those periods.  From time to time, NU, including CL&P, PSNH and WMECO, enters into forward starting interest rate swap agreements on proposed debt issuances that qualify and are designated as cash flow hedges.  Cash flow hedges are 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/(loss).  Cash flow hedges impact Net income when hedge ineffectiveness is measured and recorded, when the forecasted transaction being hedged is improbable of occurring or when the transaction is settled.  When a cash flow hedge is terminated, the settlement amount is recorded in Accumulated other comprehensive income/(loss) and is amortized into Net income over the term of the underlying debt instrument.  


For the three and nine months ended September 30, 2009, pre-tax gains/(losses) amortized from Accumulated other comprehensive income/(loss) into Interest expense were as follows:



(Millions of Dollars)

Three Months Ended September 30, 2009

 

Nine Months Ended
September 30, 2009

CL&P

$

(0.2)

 

$

(0.6)

PSNH

 

 

 

(0.1)

WMECO

 

 

 

0.1 

Other

 

0.1 

 

 

0.3 

NU

$

(0.1)

 

$

(0.3)


For further information, see Note 6, "Comprehensive Income," to the unaudited condensed consolidated financial statements.


Credit Risk

Certain derivative contracts that are accounted for at fair value, including PSNH's electricity procurement contracts, CL&P's bilateral agreements and NU Enterprises' electricity sourcing contracts, contain credit risk contingent features.  These features require these companies, or in NU Enterprises' case, NU parent, to maintain investment grade credit ratings from the major rating agencies and to post cash or standby letters of credit (LOCs) as collateral for contracts in a net liability position over specified credit limits.  NU parent provides standby LOCs under its revolving credit agreement for NU subsidiaries to post with counterparties.  The following summarizes the fair value of derivative contracts that are in a liability position and subject to credit risk contingent features and the fair value of cash collateral and standby LOCs posted with counterparties as of September 30, 2009:




(Millions of Dollars)

 

Fair Value Subject
to Credit Risk
Contingent Features

 

Cash
Collateral
Posted

 

Standby
LOCs
Posted

CL&P

 

$

(0.3)

 

$

1.0 

 

$

PSNH

 

 

(50.8)

 

 

 

 

56.0 

NU Enterprises

 

 

(17.0)

 

 

0.9 

 

 

NU

 

$

(68.1)

 

$

1.9 

 

$

56.0 


Additional collateral is required to be posted by NU Enterprises, CL&P or PSNH, respectively, if NU parent's, CL&P's or PSNH's respective unsecured debt credit ratings are downgraded below investment grade.  As of September 30, 2009, no additional cash collateral would be required to be posted if credit ratings were downgraded below investment grade.  However, if PSNH's or NU parent's senior unsecured debt were downgraded to below investment grade, additional standby LOCs in the amount of $14.8 million and $17.1 million would be required to be posted on derivative contracts for PSNH and Select Energy, respectively.


For further information, see Note 1H, "Summary of Significant Accounting Policies - Special Deposits and Counterparty Deposits," to the unaudited condensed consolidated financial statements.   




16




3.

FAIR VALUE MEASUREMENTS (All Companies)

The following tables present the amounts of assets and liabilities recorded at fair value on a recurring basis by the level in which they are classified within the fair value hierarchy:


 

 

As of September 30, 2009


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

WMECO

 

NU
Enterprises

 

Yankee Gas

 

NUSCO and
NU Parent

Derivative Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

 

$

 

$

 

$

 

$

 

$

 

$

  Level 2

 

 

15.1 

 

 

 

 

 

 

 

 

 

 

 

 

15.1 

  Level 3

 

 

221.9 

 

 

220.8 

 

 

1.1 

 

 

 

 

 

 

 

 

Total

 

$

237.0 

 

$

220.8 

 

$

1.1 

 

$

 

$

 

$

 

$

15.1 

Derivative Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

 

$

 

$

 

$

 

$

 

$

 

$

  Level 2

 

 

(50.8)

 

 

 

 

(50.8)

 

 

 

 

 

 

 

 

  Level 3

 

 

(866.2)

 

 

(820.2)

 

 

(0.1)

 

 

 

 

(45.4)

 

 

(0.5)

 

 

  Cash collateral posted

 

 

1.9 

 

 

1.0 

 

 

 

 

 

 

0.9 

 

 

 

 

Total

 

$

(915.1)

 

$

(819.2)

 

$

(50.9)

 

$

 

$

(44.5)

 

$

(0.5)

 

$

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Mutual funds

 

$

34.7 

 

$

 

$

 

$

 

$

 

$

 

$

34.7 

    Money market and other

 

 

5.7 

 

 

 

 

 

 

4.8 

 

 

 

 

 

 

0.9 

    Total Level 1

 

 

40.4 

 

 

 

 

 

 

4.8 

 

 

 

 

 

 

35.6 

  Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    U.S. government issued debt
     securities (agency and treasury)

 

 


31.5 

 

 


 

 


 

 


17.0 

 

 


 

 


 

 


14.5 

    Corporate debt securities

 

 

25.8 

 

 

 

 

 

 

18.1 

 

 

 

 

 

 

7.7 

    Asset backed securities

 

 

5.2 

 

 

 

 

 

 

1.0 

 

 

 

 

 

 

4.2 

    Municipal bonds

 

 

10.8 

 

 

 

 

 

 

10.6 

 

 

 

 

 

 

0.2 

    Other

 

 

5.5 

 

 

 

 

 

 

5.1 

 

 

 

 

 

 

0.4 

    Total Level 2

 

 

78.8 

 

 

 

 

 

 

51.8 

 

 

 

 

 

 

27.0 

Total

 

$

119.2 

 

$

 

$

 

$

56.6 

 

$

 

$

 

$

62.6 


 

 

As of December 31, 2008


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

WMECO

 

NU
Enterprises

 

Yankee Gas

 

NUSCO and
NU Parent

Derivative Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

 

$

 

$

 

$

 

$

 

$

 

$

  Level 2

 

 

20.8 

 

 

 

 

 

 

 

 

 

 

 

 

20.8 

  Level 3

 

 

252.4 

 

 

245.8 

 

 

4.7 

 

 

 

 

 

 

1.9 

 

 

Total

 

$

273.2 

 

$

245.8 

 

$

4.7 

 

$

 

$

 

$

1.9 

 

$

20.8 

Derivative Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

 

$

 

$

 

$

 

$

 

$

 

$

  Level 2

 

 

(91.7)

 

 

 

 

(91.7)

 

 

 

 

 

 

 

 

  Level 3

 

 

(921.6)

 

 

(856.9)

 

 

(0.6)

 

 

 

 

(63.9)

 

 

(0.2)

 

 

Total

 

$

(1,013.3)

 

$

(856.9)

 

$

(92.3)

 

$

 

$

(63.9)

 

$

(0.2)

 

$

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Level 1

 

$

42.1 

 

$

 

$

 

$

10.3 

 

$

 

$

 

$

31.8 

  Level 2

 

 

67.1 

 

 

 

 

 

 

45.4 

 

 

 

 

 

 

21.7 

  Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

109.2 

 

$

 

$

 

$

55.7 

 

$

 

$

 

$

53.5 


Not included in the tables above are $234.6 million and $81.6 million of cash equivalents held by NU parent as of September 30, 2009 and December 31, 2008, respectively, which are included in cash and cash equivalents on the accompanying unaudited condensed consolidated balance sheets and are classified as Level 1 in the fair value hierarchy.  


The following tables present changes for the three and nine months ended September 30, 2009 and 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 on a net basis.  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 nine months ended September 30, 2009 and 2008.



17





 

 

For the Three Months Ended September 30, 2009


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

NU
Enterprises

 

Yankee
Gas

Derivatives, Net:

 

 

 

 

 

 

 

 

 

 

Fair value as of June 30, 2009

 

$

(614.0)

 

$

(570.5)

 

$

1.3 

 

$

(44.7)

 

$

(0.1)

Net realized/unrealized losses
  included in:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net income (1)

 

 

(1.5)

 

 

 

 

 

 

(1.5)

 

 

    Regulatory assets/liabilities

 

 

(33.4)

 

 

(32.7)

 

 

(0.3)

 

 

-  

 

 

(0.4)

Purchases, issuances and settlements

 

 

4.6 

 

 

3.8 

 

 

-  

 

 

0.8 

 

 

Fair value as of September 30, 2009

 

$

(644.3)

 

$

(599.4)

 

$

1.0 

 

$

(45.4)

 

$

(0.5)

Quarterly change in unrealized losses
 included in Net income relating to items
 held as of September 30, 2009

 



$

(1.4)

 



$

 



$

 



$

(1.4)

 



$


 

 

For the Three Months Ended September 30, 2008


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

NU
Enterprises

 

Yankee
Gas

Derivatives, Net:  

 

 

 

 

 

 

 

 

 

 

Fair value as of June 30, 2008

 

$

(277.0)

 

$

(244.9)

 

$

40.9 

 

$

(74.6)

 

$

1.6 

Net realized/unrealized
  gains/(losses) included in:  

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

    Net income (1)

 

 

5.3 

 

 

 

 

 

 

5.3 

 

 

    Regulatory assets/liabilities

 

 

(195.8)

 

 

(164.1)

 

 

(30.4)

 

 

 

 

(1.3)

Purchases, issuances and settlements

 

 

 (24.1)

 

 

 (24.8)

 

 

 

 

0.7 

 

 

Fair value as of September 30, 2008

 

$

(491.6)

 

$

(433.8)

 

$

10.5 

 

$

(68.6)

 

$

0.3 

Quarterly change in unrealized gains
  included in Net income relating to items
 held as of September 30, 2008

 

$

6.0 

 

$

 

$

 

$

6.0 

 

$


 

 

For the Nine Months Ended September 30, 2009


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

NU
Enterprises

 

Yankee
Gas

Derivatives, Net:

 

 

 

 

 

 

 

 

 

 

Fair value as of January 1, 2009

 

$

(669.2)

 

$

(611.1)

 

$

4.1 

 

$

(63.9)

 

$

1.7 

Net realized/unrealized gains/(losses)
  included in:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net income (1)

 

 

6.4 

 

 

 

 

 

 

6.4 

 

 

    Regulatory assets/liabilities

 

 

4.9 

 

 

10.4 

 

 

(3.0)

 

 

 

 

(2.5)

Purchases, issuances and settlements

 

 

13.6 

 

 

1.3 

 

 

(0.1)

 

 

12.1 

 

 

0.3 

Fair value as of September 30, 2009

 

$

(644.3)

 

$

(599.4)

 

$

1.0 

 

$

(45.4)

 

$

(0.5)

Period change in unrealized gains
 included in Net income relating to items
  held as of September 30, 2009

 



$

6.1 

 



$

 



$

 



$

6.1 

 



$


 

 

For the Nine Months Ended September 30, 2008


(Millions of Dollars)

 

Total NU

 

CL&P

 

PSNH

 

NU
Enterprises

 

Yankee
Gas

Derivatives, Net:  

 

 

 

 

 

 

 

 

 

 

Fair value as of January 1, 2008 (2)

 

$

(511.1)

 

$

(426.9)

 

$

15.7 

 

$

(100.1)

 

$

0.2 

Net realized/unrealized
  gains/(losses) included in:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net income (1)

 

 

10.2 

 

 

 

 

 

 

10.2 

 

 

    Regulatory assets/liabilities

 

 

49.7 

 

 

54.8 

 

 

(5.2)

 

 

 

 

0.1 

Purchases, issuances and settlements

 

 

 (40.4)

 

 

 (61.7)

 

 

 

 

21.3 

 

 

Fair value as of September 30, 2008

 

$

(491.6)

 

$

(433.8)

 

$

10.5 

 

$

(68.6)

 

$

0.3 

Period change in unrealized gains
 included in Net income relating to items
 held as of September 30, 2008

 

$

4.5 

 

$


 

$

 

$

4.5 

 

$


(1)

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




18




(2)

Amounts as of January 1, 2008 reflect fair values after initial adoption of accounting guidance for fair value measurements.  As a result of implementation, the Company recorded an increase to derivative liabilities and a pre-tax charge 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)

Northeast Utilities Service Company (NUSCO), a subsidiary of NU, sponsors a single uniform noncontributory defined benefit retirement plan (Pension Plan), which is subject to the provisions of the Employee Retirement Income Security Act (ERISA).  The Pension Plan covers nonbargaining unit employees (and bargaining unit employees, as negotiated) of NU, including CL&P, PSNH, and WMECO, hired before 2006 (or as negotiated, for bargaining unit employees).  On behalf of NU's retirees, NUSCO also sponsors plans that provide certain retiree health care benefits, primarily medical and dental, and life insurance benefits through a post-retirement benefits other than pension plan (PBOP Plan).  In addition, NU maintains a Supplemental Executive Retirement Plan (SERP), which provides benefits to eligible participants who are officers of NU.  This plan primarily provides benefits that would have been provided to these employees under the Pension Plan if certain Internal Revenue Code limitations were not imposed.


The components of net periodic expense/(income) for the Pension Plan, PBOP Plan and SERP for the three and nine months ended September 30, 2009 and 2008 are as follows:


 

 

For the Three Months Ended September 30,

NU

 

Pension Benefits

 

PBOP Benefits

 

SERP Benefits

(Millions of Dollars)

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

Service cost

 

$

11.3

 

$

11.1 

 

$

1.8 

 

$

1.8 

 

$

0.2 

 

$

0.2 

Interest cost

 

 

38.3

 

 

35.9 

 

 

7.3 

 

 

7.0 

 

 

0.6 

 

 

0.5 

Expected return on plan assets

 

 

(47.3)

 

 

(50.0)

 

 

(5.3)

 

 

(5.3)

 

 

 

 

Net transition obligation cost

 

 

0.1

 

 

 

 

2.8 

 

 

2.9 

 

 

 

 

Prior service cost/(credit)

 

 

2.4

 

 

2.5 

 

 

 

 

(0.1)

 

 

 

 

Actuarial loss

 

 

5.1

 

 

1.1 

 

 

2.6 

 

 

2.7 

 

 

0.1 

 

 

0.1 

Total - net periodic expense

 

$

9.9

 

$

0.6 

 

$

9.2 

 

$

9.0 

 

$

0.9 

 

$

0.8 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CL&P - net periodic (income)/expense

 

$

(1.5)

 

$

(5.3)

 

$

3.8 

 

$

3.9 

 

$

 

$

0.1 

PSNH - net periodic expense

 

$

5.8 

 

$

4.5 

 

$

1.7 

 

$

1.8 

 

$

0.1 

 

$

0.1 

WMECO - net periodic (income)/expense

 

$

(0.7)

 

$

(1.5)

 

$

0.6 

 

$

0.7 

 

 

 

 


 

 

For the Nine Months Ended September 30,

NU

 

Pension Benefits

 

PBOP Benefits

 

SERP Benefits

(Millions of Dollars)

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

Service cost

 

$

33.8 

 

$

32.8 

 

$

5.4 

 

$

5.3 

 

$

0.6 

 

$

0.5 

Interest cost

 

 

115.1 

 

 

108.1 

 

 

21.8 

 

 

21.2 

 

 

1.7 

 

 

1.5 

Expected return on plan assets

 

 

(142.0)

 

 

(150.2)

 

 

(15.7)

 

 

(15.8)

 

 

 

 

Net transition obligation cost

 

 

0.2 

 

 

0.2 

 

 

8.5 

 

 

8.7 

 

 

 

 

Prior service cost/(credit)

 

 

7.3 

 

 

7.4 

 

 

 

 

(0.2)

 

 

0.1 

 

 

0.1 

Actuarial loss

 

 

15.4 

 

 

3.6 

 

 

7.9 

 

 

7.9 

 

 

0.3 

 

 

0.2 

Total - net periodic expense

 

$

29.8 

 

$

1.9 

 

$

27.9 

 

$

27.1 

 

$

2.7 

 

$

2.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CL&P - net periodic (income)/expense

 

$

(4.3)

 

$

(16.0)

 

$

11.6 

 

$

11.8 

 

$

0.2 

 

$

0.2 

PSNH - net periodic expense

 

$

17.4 

 

$

13.6 

 

$

5.2 

 

$

5.3 

 

$

0.2 

 

$

0.2 

WMECO - net periodic (income)/expense

 

$

(2.2)

 

$

(4.6)

 

$

2.0 

 

$

2.1 

 

 

 

 


*A de minimis amount of SERP expense was recorded for WMECO.




19




Not included in the Pension Plan, PBOP Plan and SERP amounts above for CL&P, PSNH and WMECO are related intercompany allocations as follows:


 

 

For the Three Months Ended September 30,

 

 

CL&P

 

PSNH

 

WMECO

(Millions of Dollars)

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

Pension Benefits

 

$

3.6 

 

$

2.0 

 

$

0.7 

 

$

0.4 

 

$

0.6 

 

$

0.3 

PBOP Benefits

 

 

1.8 

 

 

1.7 

 

 

0.4 

 

 

0.4 

 

 

0.3 

 

 

0.3 

SERP Benefits

 

 

0.5 

 

 

0.4 

 

 

0.1 

 

 

0.1 

 

 

0.1 

 

 

0.1 


 

 

For the Nine Months Ended September 30,

 

 

CL&P

 

PSNH

 

WMECO

(Millions of Dollars)

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

Pension Benefits

 

$

11.0 

 

$

6.0 

 

$

2.4 

 

$

1.2 

 

$

1.8 

 

$

1.0 

PBOP Benefits

 

 

5.5 

 

 

5.1 

 

 

1.3 

 

 

1.1 

 

 

0.9 

 

 

0.8 

SERP Benefits

 

 

1.4 

 

 

1.2 

 

 

0.3 

 

 

0.3 

 

 

0.2 

 

 

0.2 


A portion of the pension amounts is capitalized related to current employees who are working on capital projects.  Amounts capitalized for NU, CL&P, PSNH and WMECO were as follows:  


 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

(Millions of Dollars)

 

2009

 

2008

 

2009

 

2008

NU

 

$

1.5 

 

$

(1.4)

 

$

4.6 

 

$

(4.1)

CL&P

 

 

(0.1)

 

 

(2.1)

 

 

(0.2)

 

 

(6.5)

PSNH

 

 

1.4 

 

 

1.2 

 

 

4.3 

 

 

3.5 

WMECO

 

 

(0.2)

 

 

(0.6)

 

 

(0.5)

 

 

(1.7)


The amounts for the three and nine months ended September 30, 2009 and 2008 for CL&P and WMECO, and the amounts for the three and nine months ended September 30, 2008 for NU, offset capital costs, as pension income was recorded related to these capital projects.  


5.

COMMITMENTS AND CONTINGENCIES


A.

Long-Term Contractual Arrangements (NU, CL&P)

Estimated Future Annual CL&P Costs:  The estimated future annual costs of CL&P's renewable energy contract arrangements, updated as of September 30, 2009, are as follows:  


(Millions of Dollars)

 

2009

 

2010

 

2011

 

2012

 

2013

 

Thereafter

 

Total

Renewable energy
  contracts

 


$


 


$


7.3 

 


$


67.9 

 


$


152.2 

 


$


153.1 

 


$


2,245.9 

 


$


2,626.4 


Renewable Energy Contracts:  In May 2009, pursuant to Connecticut's "Act Concerning Energy Independence," the DPUC approved five renewable energy plant projects with total capacity of 27.3 MW.  Contracts for the purchase of energy, capacity and renewable energy certificates from these projects have been signed by CL&P and were approved by the DPUC on August 4, 2009.  Purchases under the contracts are scheduled to begin from September 2010 through July 2011 and to extend for 15 to 20 years.  As directed by the DPUC, CL&P and UI have signed a sharing agreement under which they will share the costs and benefits of these contracts with 80 percent to CL&P and 20 percent to UI.  CL&P's portion of the costs and benefits of these contracts will be paid by or refunded to CL&P's customers.  


B.

Environmental Matters (HWP)

Holyoke Water Power Company (HWP) is a subsidiary of NU that remains in the process of evaluating additional potential remediation requirements at a river site in Massachusetts containing tar deposits associated with a manufactured gas plant (MGP) site, 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 investigative and remediation activities.  HWP first established a reserve for this site in 1994.  In the second quarter of 2009, a pre-tax charge of $1.1 million was recorded to reflect the estimated cost of additional tar delineation and site characterization studies that are considered to be probable and estimable.  The cumulative expense recorded to this reserve through September 30, 2009 was approximately $17 million, of which $15.2 million had been spent, leaving approximately $1.8 million in the reserve as of September 30, 2009.  


The Massachusetts Department of Environmental Protection (MA DEP) issued a letter on April 3, 2008 to HWP and HG&E, which share responsibility for the site, providing conditional authorization for additional investigatory and risk characterization activities and



20




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 has developed and implemented site characterization studies to further delineate tar deposits in conformity 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 $1.8 million remaining in the reserve is at the low end of a range of probable and estimable costs of approximately $1.8 million to $2.5 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 throughout the remainder of 2009.  


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 Net income.  However, management cannot reasonably estimate the range of additional investigation and remediation costs because it 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.  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.  


C.

Guarantees and Indemnifications (All Companies)

NU parent provides credit assurances on behalf of its subsidiaries, including CL&P, PSNH and WMECO, in the form of guarantees and 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 sale of Select Energy Services, Inc. (SESI).  As of September 30, 2009, the aggregate fair value amount recorded for these guarantees and indemnifications totaled $0.3 million and is included in Current liabilities - Other on the accompanying unaudited condensed consolidated balance sheets.  


In addition, NU parent provided guarantees and various indemnifications on behalf of external parties as a result of the sales of NU Enterprises' former retail marketing business and competitive generation business.  As of September 30, 2009, these included indemnifications for compliance with tax and environmental laws, and various claims for which the maximum exposure was not specified in the sale agreements.


The following table summarizes the NU, including CL&P, PSNH, and WMECO, maximum exposure as of September 30, 2009, in accordance with guidance on guarantor's accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others, and expiration dates:  




Company

 



Description

 

Maximum
Exposure
(in millions)

 

 


Expiration
Date(s)

On behalf of external parties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ameresco Select, Inc.

 

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 (2)

 

Not Specified 

(1)

 

Through project completion

 

 

 

 

 

 

 

 

 

 

Indemnifications to lenders for payment of shortfalls in the event of early termination of government contracts (3)

 

$1.0 

 

 

2017-2018

 

 

 

 

 

 

 

 

 

 

Surety bonds covering certain projects

 

$0.4 

 

 

Through project
completion

 

 

 

 

 

 

 

 

On behalf of subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CL&P

 

Surety bonds

 

$2.6 

 

 

December 2009 -September 2010 (4)

 

 

 

 

 

 

 

 

PSNH

 

Surety bonds

 

$4.0 

 

 

January 2010 -
November 2010 (4)

 

 

Letters of credit

 

$70.0 

 

 

January 2010 -
July 2010

 

 

 

 

 

 

 

 

WMECO

 

Surety bonds

 

$3.7 

 

 

May-June 2010 (4)

 

 

 

 

 

 

 

 



21







HWP

 

Surety bonds

 

$1.0 

 

 

May 2010 (4)

 

 

 

 

 

 

 

 

NAESCO (North Atlantic Energy Service Corporation)

 

Surety bonds

 

$1.6 

 

 

May 2010 (4)

 

 

 

 

 

 

 

 

Rocky River Realty Company

 

Lease payments for real estate

 

$11.4 

 

 

2024

 

 

 

 

 

 

 

 

NUSCO

 

Lease payments for fleet of vehicles

 

$6.8 

 

 

October 2009-2014

 

 

Surety bonds

 

$0.4 

 

 

May 2010 (4)

 

 

Lease payments for real estate

 

$2.2 

 

 

2019

 

 

 

 

 

 

 

 

E.S. Boulos Company (Boulos)

 

Surety bonds covering ongoing projects

 

$27.1 

 

 

Through project
completion

 

 

 

 

 

 

 

 

Northeast Generation Services Company (NGS)

 

Performance guarantee and insurance bonds

 

$20.4 

(5)

 

2020 (5)

 

 

 

 

 

 

 

 

Select Energy

 

Performance guarantees for wholesale contracts

 

$19.1 

(6)

 

2013

 

 

Letters of credit

 

$2.0 

 

 

January 2010

 

 

 

 

 

 

 

 

Other - CYAPC

 

Surety bonds

 

$0.3 

 

 

April 2010 (4)


(1)

No maximum exposure is specified in the related sale agreements.  


(2)

The fair value for amounts recorded for these indemnifications was $0.2 million as of September 30, 2009.


(3)

The fair value for amounts recorded for these indemnifications was $0.1 million as of September 30, 2009.  


(4)

Surety bond expiration dates reflect bond termination dates, the majority of which will be renewed or extended.  


(5)

Included in the maximum exposure is $19.2 million related to a performance guarantee of NGS obligations for which no maximum exposure is specified in the agreement.  The maximum exposure was calculated as of September 30, 2009 based on limits of NGS's liability contained in the underlying service contract and assumes that NGS will perform under that contract through its expiration in 2020.  The remaining $1.2 million of maximum exposure relates to insurance bonds with no expiration date that are billed annually on their anniversary date.  


(6)

Maximum exposure is as of September 30, 2009; however, exposures vary with underlying commodity prices and for certain contracts are essentially unlimited.  


CL&P, PSNH and WMECO have no guarantees of the performance of third parties.  


Many of the underlying contracts that NU parent guarantees, as well as certain surety bonds, contain credit ratings triggers that would require NU parent to post collateral in the event that NU's unsecured debt credit ratings are downgraded below investment grade.  


6.

COMPREHENSIVE INCOME (NU, CL&P, PSNH, WMECO)


Total comprehensive income, which includes all comprehensive income/(loss) items, net of tax and by category, for the three and nine months ended September 30, 2009 and 2008 is as follows:


 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2009

 

2008

 

2009

 

2008

(Millions of Dollars)

 

NU

 

NU

 

NU

 

NU

Net income

 

$

66.2 

 

$

74.1 

 

$

249.5 

 

$

193.1 

Comprehensive income/(loss) items:

 

 

 

 

 

 

 

 

 

 

 

 

  Qualified cash flow hedging instruments

 

 

0.1 

 

 

(1.1)

 

 

0.1 

 

 

(7.0)

  Change in unrealized gains/(losses)
   on other securities (1)

 

 


0.3 

 

 


(0.9)

 

 


(0.7)

 

 


(1.6)

  Pension, SERP and PBOP benefits

 

 

0.8 

 

 

0.1 

 

 

0.1 

 

 

2.1 

Net change in comprehensive
   income/(loss) items

 

 


1.2 

 

 


(1.9)

 

 


(0.5)

 

 


(6.5)

Total comprehensive income

 

 

67.4 

 

 

72.2 

 

 

249.0 

 

 

186.6 

Comprehensive income attributable
  to noncontrolling interests

 

 


(1.4)

 

 


(1.4)

 

 


(4.2)

 

 


(4.2)

Comprehensive income attributable
  to controlling interests

 

$


66.0 

 

$


70.8 

 

$


244.8 

 

$


182.4 




22







 

 

Three Months Ended September 30, 2009

 

Three Months Ended September 30, 2008

 

 

CL&P

 

PSNH

 

WMECO

 

CL&P

 

PSNH

 

WMECO

Net income

 

$

46.5 

 

$

16.2 

 

$

8.5 

 

$

55.5 

 

$

14.3 

 

$

5.2 

Comprehensive income/(loss) items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Qualified cash flow hedging instruments

 

 

0.1 

 

 

 

 

 

 

0.1 

 

 

 

 

  Change in unrealized gains/(losses)
     on other securities (1)

 

 


 

 


 

 


 

 


 

 


 

 


(0.3)

Net change in comprehensive
 income/(loss) items

 

 


0.1 

 

 


 

 


 

 


0.1 

 

 


 

 


(0.3)

Total comprehensive income

 

$

46.6 

 

$

16.2 

 

$

8.5 

 

$

55.6 

 

$

14.3 

 

$

4.9 


 

 

Nine Months Ended September 30, 2009

 

Nine Months Ended September 30, 2008

 

 

CL&P

 

PSNH

 

WMECO

 

CL&P

 

PSNH

 

WMECO

Net income

 

$

158.1 

 

$

50.3 

 

$

20.5 

 

$

147.9 

 

$

44.7 

 

$

14.8 

Comprehensive income/(loss) items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Qualified cash flow hedging instruments

 

 

0.3 

 

 

0.1 

 

 

(0.1)

 

 

(3.5)

 

 

(1.4)

 

 

(0.1)

  Change in unrealized gains/(losses)
   on other securities (1)

 

 


 

 


(0.1)

 

 


(0.1)

 

 


 

 


(0.1)

 

 


(0.3)

Net change in comprehensive
   income/(loss) items

 

 


0.3 

 

 


 

 


(0.2)

 

 


(3.5)

 

 


(1.5)

 

 


(0.4)

Total comprehensive income

 

$

158.4 

 

$

50.3 

 

$

20.3 

 

$

144.4 

 

$

43.2 

 

$

14.4 


(1)

Represents changes in unrealized gains/(losses) on securities held in the NU supplemental benefit trust.  For further information, see Note 10, "Marketable Securities," to the unaudited condensed consolidated financial statements.  


Fair value adjustments included in Accumulated other comprehensive loss for qualified cash flow hedging instruments are as follows:



NU
(Millions of Dollars, Net of Tax)

 

For the Nine
Months Ended
September 30, 2009

 

For the Twelve
Months Ended
December 31, 2008

Balance at beginning of period

 

$

(4.6)

 

$

2.3 

Hedged transactions impacting Net income

 

 

0.1 

 

 

0.4 

Change in fair value of interest rate swap agreements

 

 

 

 

(7.0)

Cash flow transactions entered into for period

 

 

 

 

(0.3)

Net change associated with hedging transactions

 

 

0.1 

 

 

(6.9)

Total fair value adjustments included in
  Accumulated other comprehensive loss

 

$


(4.5)

 

$


(4.6)


 

 

Nine Months Ended September 30, 2009

 

Twelve Months Ended December 31, 2008

(Millions of Dollars, Net of Tax)

 

CL&P

 

PSNH

 

WMECO

 

CL&P

 

PSNH

 

WMECO

Balance at beginning of period

 

$

(3.6)

 

$

(0.8)

 

$

0.1 

 

$

(0.3)

 

$

0.6 

 

$

0.2 

Hedged transactions impacting Net income

 

 

0.3 

 

 

0.1 

 

 

(0.1)

 

 

0.4 

 

 

0.2 

 

 

(0.1)

Change in fair value of interest rate swap agreements

 

 

 

 

 

 

 

 

(3.7)

 

 

(1.4)

 

 

Cash flow transactions entered into for period

 

 

 

 

 

 

 

 

 

 

(0.2)

 

 

Net change associated with hedging transactions

 

 

0.3 

 

 

0.1 

 

 

(0.1)

 

 

(3.3)

 

 

(1.4)

 

 

(0.1)

Total fair value adjustments included in
  Accumulated other comprehensive (loss)/income

 

$


(3.3)

 


$


(0.7)

 


$


 

$


(3.6)

 


$


(0.8)

 


$


0.1 


Hedged transactions impacting Net income in the tables above represent amounts that were reclassified from Accumulated other comprehensive (loss)/income into Net income in connection with the consummation of interest rate swap agreements and the amortization of existing interest rate hedges.


There were no forward starting interest rate swaps entered into for the three and nine months ended September 30, 2009.  For NU, it is estimated that a charge of $0.2 million will be reclassified from Accumulated other comprehensive loss as a decrease to Net income over the next 12 months as a result of amortization of interest rate swap agreements that have been settled.  Included in this amount are estimated charges of $0.4 million and $0.1 million for CL&P and PSNH, respectively, and a benefit of $0.1 million for WMECO.  As of September 30, 2009, it is estimated that a pre-tax amount of $0.7 million included in the Accumulated other comprehensive loss balance will be reclassified as a decrease to Net income over the next 12 months related to Pension Plan, SERP and PBOP Plan benefits adjustments for NU.


7.

EARNINGS PER SHARE (NU)

Earnings per share (EPS) is computed based upon the monthly 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 monthly weighted average number of common shares outstanding plus the potential dilutive effect if certain securities are converted into common stock.  The computation of diluted EPS excludes the effect of the potential exercise of share awards when the average market price of the common shares is lower than the exercise price of the related awards during the period.  These outstanding share



23




awards are not included in the computation of diluted EPS because the effect would have been antidilutive.  For the nine month period ended September 30, 2009, there were 18,012 share awards excluded from the computation as these awards were antidilutive.  There were no antidilutive share awards outstanding for the three month period ended September 30, 2009 and for the three and nine month periods ended September 30, 2008.  The weighted average common shares outstanding as of September 30, 2009 includes the impact of the issuance of approximately 19 million common shares on March 20, 2009.  


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


 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

(Millions of Dollars, Except for Share Information)

 

2009

 

2008

 

2009

 

2008

Net income attributable to controlling interests

 

$

64.8 

 

$

72.7 

 

$

245.3 

 

$

188.9 

Basic common shares outstanding (average)

 

 

175,358,776 

 

 

155,607,201 

 

 

170,958,396 

 

 

155,456,606 

Dilutive effect

 

 

636,730 

 

 

490,440 

 

 

574,517 

 

 

448,265 

Fully diluted common shares outstanding (average)

 

 

175,995,506 

 

 

156,097,641 

 

 

171,532,913 

 

 

155,904,871 

Basic EPS

 

$

0.37 

 

$

0.47 

 

$

1.43 

 

$

1.22 

Fully Diluted EPS

 

$

0.37 

 

$

0.47 

 

$

1.43 

 

$

1.21 


Restricted share units (RSUs) and performance units are included in basic common shares outstanding when the units have vested and common shares are issued.  The dilutive effect of outstanding RSUs and performance units for which common shares have not been issued is calculated using the treasury stock method.  Assumed proceeds of the units 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 units (the difference between the market value of the units 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 average stock options outstanding for the period using the average market price and the grant price).  


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


8.

LONG-TERM DEBT (CL&P, Yankee Gas)

On February 13, 2009, CL&P issued $250 million of first mortgage bonds with a coupon rate of 5.5 percent and a maturity date of February 1, 2019.  The proceeds from this issuance were used to repay short-term debt and to fund CL&P's ongoing capital investment programs.  The indenture under which the bonds were issued requires CL&P to comply with certain covenants as are customarily included in such indenture.  CL&P was in compliance with these covenants as of September 30, 2009.  


On April 2, 2009, CL&P completed the remarketing and reissuance of $62 million of pollution control revenue bonds it had elected to acquire in October 2008.  The PCRBs, which mature on May 1, 2031, carry a coupon of 5.25 percent during the current fixed-rate period and are subject to a mandatory tender for purchase on April 1, 2010, at which time CL&P expects to remarket the bonds.


On April 1, 2009, using funds borrowed from the NU Money Pool, Yankee Gas retired $50 million of first mortgage bonds carrying a coupon of 6.2 percent that were issued in January 1999.  




24




9.

FAIR VALUE OF FINANCIAL INSTRUMENTS (All Companies)

The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:


Preferred Stock, Long-Term Debt and Rate Reduction Bonds:  The fair value of CL&P's preferred stock is based upon pricing models that incorporate interest rates and other market factors, valuations or trades of similar securities and cash flow projections.  The fair value of fixed-rate long-term debt securities and rate reduction bonds is based upon pricing models that incorporate quoted market prices for those issues or similar issues adjusted for market conditions, credit ratings of the respective companies and treasury benchmark yields.  Adjustable rate securities are assumed to have a fair value equal to their carrying value.  Carrying amounts and estimated fair values are as follows:


 

 

As of September 30, 2009

 

 

NU


(Millions of Dollars)

 

Carrying
Amount

 

Fair
Value

Preferred stock not subject
  to mandatory redemption

 

$


116.2 

 

$


86.2 

Long-term debt -

 

 

 

 

 

 

   First mortgage bonds

 

 

2,507.7 

 

 

2,663.7 

   Other long-term debt

 

 

1,893.6 

 

 

1,939.9 

Rate reduction bonds

 

 

503.3 

 

 

547.2 


 

 

As of September 30, 2009

 

 

CL&P

 

PSNH

 

WMECO


(Millions of Dollars)

 

Carrying
Amount

 

Fair
Value

 

Carrying
Amount

 

Fair
Value

 

Carrying
Amount

 

Fair
Value

Preferred stock not subject
  to mandatory redemption

 

$


116.2 

 

$


86.2 

 

$


 

$


 

$


 

$


Long-term debt -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   First mortgage bonds

 

 

1,919.8 

 

 

2,045.1 

 

 

280.0 

 

 

295.0 

 

 

 

 

   Other long-term debt

 

 

667.4 

 

 

675.0 

 

 

407.3 

 

 

410.0 

 

 

305.9 

 

 

307.0 

Rate reduction bonds

 

 

240.3 

 

 

261.9 

 

 

200.6 

 

 

217.9 

 

 

62.3 

 

 

67.4 


Consolidated other long-term debt includes $300.6 million of fees and interest due for spent nuclear fuel disposal costs as of September 30, 2009.  CL&P and WMECO's portions of this obligation are $243.5 million and $57.1 million, respectively.


Derivative Instruments:  NU, including CL&P, PSNH, and WMECO, holds various derivative instruments that are carried at fair value.  For further information, see Note 2, "Derivative Instruments," to the unaudited condensed consolidated financial statements.  


Other Financial Instruments:  Investments in marketable securities are carried at fair value on the accompanying unaudited condensed consolidated balance sheets.  For further information, see Note 3, "Fair Value Measurements," and Note 10, "Marketable Securities," to the unaudited condensed consolidated financial statements.


NU parent holds a long-term government receivable related to SESI.  The carrying value of the receivable was $8.8 million as of September 30, 2009 and is included in Deferred debits and other assets - Other on the accompanying unaudited condensed consolidated balance sheet.  The fair value of this receivable was $10.8 million as of September 30, 2009 and was determined based on discounted cash flows using a seven-year Treasury rate to match the weighted average life of the anticipated cash flow stream.  


The carrying value of other financial instruments included in current assets and current liabilities, including cash and cash equivalents and special deposits, approximates their fair value due to the short-term nature of these instruments.


10.

MARKETABLE SECURITIES (NU, WMECO)

The Company elected to record exchange traded mutual funds purchased during 2009 in the NU supplemental benefit trust at fair value in order to reflect the economic effect of changes in fair value of all newly purchased equity securities in Net income.  These equity securities, classified as Level 1 in the fair value hierarchy, totaled $34.7 million as of September 30, 2009.  Gains on these securities of $4.7 million and $5.2 million for the three and nine months ended September 30, 2009, respectively, were recorded in Other income, net on the accompanying unaudited condensed consolidated statements of income.  Dividend income is recorded when dividends are declared and are recorded in Other income, net on the accompanying unaudited condensed consolidated statements of income.  All other marketable securities are accounted for as available-for-sale.  


Available-for-Sale Securities:  The following is a summary by security type of NU's available-for-sale securities held in the supplemental benefit trust and WMECO's spent nuclear fuel trust.  These securities are recorded at fair value and included in current and long-term marketable securities on the accompanying unaudited condensed consolidated balance sheets.



25





 

 

As of September 30, 2009




(Millions of Dollars)

 

Amortized
Cost

 

Pre-Tax
Gross
Unrealized
Gains (1)

 

Pre-Tax
Gross
Unrealized
Losses (1)

 


Fair Value

NU supplemental benefit trust

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government issued debt securities
  (Agency and Treasury)

 

$


14.1 

 

$


0.4 

 

$


 

$


14.5 

Corporate debt securities

 

 

7.3 

 

 

0.5 

 

 

(0.1)

 

 

7.7 

Asset backed debt securities

 

 

4.2 

 

 

0.1 

 

 

(0.1)

 

 

4.2 

Municipal bonds

 

 

0.2 

 

 

 

 

 

 

0.2 

Other

 

 

1.3 

 

 

 

 

 

 

1.3 

Total NU supplemental benefit trust

 

$

27.1 

 

$

1.0 

 

$

(0.2)

 

$

27.9 


WMECO spent nuclear fuel trust

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government issued debt securities
  (Agency and Treasury)

 

$


17.0 

 

$


 

$


 

$


17.0 

Corporate debt securities

 

 

18.2 

 

 

0.1 

 

 

(0.2)

 

 

18.1 

Asset backed debt securities

 

 

1.2 

 

 

 

 

(0.2)

 

 

1.0 

Municipal bonds

 

 

10.6 

 

 

 

 

 

 

10.6 

Other

 

 

9.9 

 

 

 

 

 

 

9.9 

Total WMECO spent nuclear fuel trust

 

$

56.9 

 

$

0.1 

 

$

(0.4)

 

$

56.6 

Total NU

 

$

84.0 

 

$

1.1 

 

$

(0.6)

 

$

84.5 


(1)

Unrealized gains and losses on debt securities for the NU supplemental benefit trust and WMECO spent nuclear fuel trust are recorded in Accumulated other comprehensive loss and Deferred debits and other assets - other, respectively.  For information related to the change in unrealized gains and losses for the NU supplemental benefit trust included in Accumulated other comprehensive loss, see Note 6, "Comprehensive Income," to the unaudited condensed consolidated financial statements.


Unrealized Losses and Other-than-Temporary Impairment:  Gross unrealized losses and fair values of debt securities that have been in a continuous unrealized loss position for less than 12 months and 12 months or greater are as follows:


 

 

As of September 30, 2009

 

 

Less than 12 Months

 

12 Months or Greater

 

Total




(Millions of Dollars)

 


Fair Value

 

Pre-Tax
Gross
Unrealized
Losses

 


Fair Value

 

Pre-Tax
Gross
Unrealized
Losses

 


Fair Value

 

Pre-Tax
Gross
Unrealized
Losses

NU supplemental benefit trust

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

$

 

$

0.4 

 

$

(0.1)

 

$

0.4 

 

$

(0.1)

Asset backed debt securities

 

 

 

 

 

 

1.4 

 

 

(0.1)

 

 

1.4 

 

 

(0.1)

Total supplemental benefit
  trust

 

$


 

$


 

$


1.8 

 

$


(0.2)

 

$


1.8 

 

$


(0.2)


WMECO spent nuclear
  fuel trust

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

$

 

$

0.2 

 

$

(0.2)

 

$

0.2 

 

$

(0.2)

Asset backed debt securities

 

 

 

 

 

 

0.5 

 

 

(0.2)

 

 

0.5 

 

 

(0.2)

Total WMECO spent nuclear
   fuel trust

 

$


 

$


 

$


0.7 

 

$


(0.4)

 

$


0.7 

 

$


(0.4)

Total NU

 

$

 

$

 

$

2.5 

 

$

(0.6)

 

$

2.5 

 

$

(0.6)


As of September 30, 2009, there were no debt securities that the Company intends to sell or that management believes the Company will more likely than not be required to sell before recovery of amortized cost.  Credit losses for the NU supplemental benefit trust were de minimus for the three and nine months ended September 30, 2009.  There were no credit losses for the three months ended September 30, 2009 for the WMECO spent nuclear fuel trust.  There were $0.7 million of credit losses for the nine months ended September 30, 2009 recorded in Deferred debits and other assets - Other for the WMECO spent nuclear fuel trust.  Factors considered in determining whether a credit loss exists include the duration and severity of the impairment, adverse conditions specifically affecting the issuer, and the payment history, ratings and rating changes of the security.  For asset backed securities, underlying collateral and expected future cash flows are also evaluated.  All of the Company's corporate and asset-backed securities are rated above investment grade.  




26




Contractual Maturities: As of September 30, 2009, the contractual maturities of available-for-sale debt securities are as follows:


 

 

 

NU

 

WMECO


(Millions of Dollars)

 

 

Amortized
Cost

 

 

Estimated
Fair Value

 

 

Amortized
Cost

 

 

Estimated
Fair Value

Less than one year

 

$

29.3 

 

$

29.2 

 

$

28.0 

 

$

28.0 

One to five years

 

 

24.6 

 

 

24.8 

 

 

17.8 

 

 

17.8 

Six to ten years

 

 

7.3 

 

 

7.7 

 

 

1.2 

 

 

1.2 

Greater than ten years

 

 

22.8 

 

 

22.8 

 

 

9.9 

 

 

9.6 

Total debt securities

 

$

84.0 

 

$

84.5 

 

$

56.9 

 

$

56.6 


Sales of Securities:  For the three and nine months ended September 30, 2009, realized gains and losses recognized on the sale of available-for-sale securities are as follows:


 

 

Three Months Ended September 30, 2009

 

Nine Months Ended September 30, 2009


(Millions of Dollars)

 

 

Realized
Gains

 

 

Realized
Losses

 

 

Net Realized
Gains/(Losses)

 

 

Realized
Gains

 

 

Realized
Losses

 

 

Net Realized
Gains/(Losses)

NU

 

$

5.0 

 

$

(0.7)

 

$

4.3 

 

$

13.3 

 

$

(5.2)

 

$

8.1 

WMECO

 

 

 

 

(0.7)

 

 

(0.7)

 

 

 

 

(0.7)

 

 

(0.7)


Realized gains and losses on available-for-sale-securities are recorded in Other income, net for the NU supplemental benefit trust and in Deferred debits and other assets - other for the WMECO spent nuclear fuel trust.  NU utilizes the specific identification basis method for the NU supplemental benefit trust securities and the average cost basis method for the WMECO spent nuclear fuel trust to compute the realized gains and losses on the sale of available-for-sale securities.  Proceeds from the sale of these securities, including proceeds from short-term investments, totaled $34.4 million and $182.1 million for the three and nine months ended September 30, 2009, respectively, including $21.6 million and $99.9 million, respectively, for WMECO.


11.

SEGMENT INFORMATION (All Companies)

Presentation:  NU is organized into two segments; 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 business 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 related to equity funds, and the capitalized portions of pension and PBOP expense or income.  


The regulated companies segments, including the electric distribution and transmission segments, as well as the gas distribution segment (Yankee Gas), represented approximately 99 percent of NU's total consolidated revenues for the three- and nine-month periods ended September 30, 2009 and 2008.  CL&P's, PSNH's and WMECO's complete unaudited 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.


NU Enterprises is comprised of the following:  1) Select Energy (wholesale contracts), 2) NGS, 3) Boulos, 4) NGS Mechanical, and 5) NU Enterprises parent.  


Other in the tables below primarily consists of 1) the results of NU parent, which includes 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 NU's service companies, most of which are eliminated in consolidation, and 3) the results of other subsidiaries, which are comprised of The Rocky River Realty Company (a real estate subsidiary), Mode 1 Communications, Inc., the results of the non-energy-related subsidiaries of Yankee Energy System, Inc. (Yankee Energy Services Company and Yankee Energy Financial Services Company) and the remaining operations of HWP that were not exited as part of the sale of the competitive generation business in 2006 and the sale of its transmission business to WMECO in December 2008.  




27




NU's segment information for the three and nine months ended September 30, 2009 and 2008 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 September 30, 2009

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

 

 

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

1,082.0 

 

$

60.5 

 

$

149.0 

 

$

19.6 

 

$

95.7 

 

$

(100.6)

 

$

1,306.2 

Depreciation and amortization

 

 

(117.2)

 

 

(6.6)

 

 

(17.8)

 

 

(0.1)

 

 

(3.1)

 

 

0.5 

 

 

(144.3)

Other operating expenses

 

 

(890.1)

 

 

(55.7)

 

 

(44.5)

 

 

(19.0)

 

 

(93.9)

 

 

103.9 

 

 

(999.3)

Operating income/(loss)

 

 

74.7 

 

 

(1.8)

 

 

86.7 

 

 

0.5 

 

 

(1.3)

 

 

3.8 

 

 

162.6 

Interest expense, net of AFUDC

 

 

(38.1)

 

 

(5.5)

 

 

(19.2)

 

 

(0.5)

 

 

(7.7)

 

 

1.4 

 

 

(69.6)

Interest income

 

 

0.3 

 

 

 

 

0.1 

 

 

 

 

1.7 

 

 

(1.7)

 

 

0.4 

Other income, net

 

 

5.9 

 

 

0.1 

 

 

3.1 

 

 

 

 

65.5 

 

 

(65.6)

 

 

9.0 

Income tax (expense)/benefit

 

 

(15.0)

 

 

2.7 

 

 

(27.3)

 

 

0.3 

 

 

4.2 

 

 

(1.1)

 

 

(36.2)

Net income/(loss)

 

 

27.8 

 

 

(4.5)

 

 

43.4 

 

 

0.3 

 

 

62.4 

 

 

(63.2)

 

 

66.2 

Net income attributable to
  noncontrolling interests

 

 


(0.8)

 

 


 

 


(0.6)

 

 


 

 


 

 


 

 


(1.4)

Net income/(loss) attributable to
  controlling interests

 

$


27.0 

 

$


(4.5)

 

$


42.8 

 

$


0.3 

 

$


62.4 

 


$


(63.2)

 


$


64.8 


 

 

For the Nine Months Ended September 30, 2009

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

 

 

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

3,335.2 

 

$

332.5 

 

$

418.9 

 

$

61.3 

 

$

295.9 

 

$

(319.7)

 

$

4,124.1 

Depreciation and amortization

 

 

(332.8)

 

 

(20.0)

 

 

(53.1)

 

 

(0.3)

 

 

(10.5)

 

 

1.8 

 

 

(414.9)

Other operating expenses

 

 

(2,756.8)

 

 

(271.3)

 

 

(120.8)

 

 

(40.6)

 

 

(283.4)

 

 

322.7 

 

 

(3,150.2)

Operating income

 

 

245.6 

 

 

41.2 

 

 

245.0 

 

 

20.4 

 

 

2.0 

 

 

4.8 

 

 

559.0 

Interest expense, net of AFUDC

 

 

(112.1)

 

 

(16.8)

 

 

(53.4)

 

 

(2.4)

 

 

(25.9)

 

 

5.0 

 

 

(205.6)

Interest income

 

 

3.5 

 

 

 

 

0.8 

 

 

 

 

6.1 

 

 

(6.0)

 

 

4.4 

Other income

 

 

15.7 

 

 

0.2 

 

 

5.6 

 

 

 

 

274.7 

 

 

(274.5)

 

 

21.7 

Income tax (expense)/benefit

 

 

(45.5)

 

 

(9.3)

 

 

(76.3)

 

 

(6.4)

 

 

9.5 

 

 

(2.0)

 

 

(130.0)

Net income

 

 

107.2 

 

 

15.3 

 

 

121.7 

 

 

11.6 

 

 

266.4 

 

 

(272.7)

 

 

249.5 

Net income attributable to
  noncontrolling interests

 

 


(2.5)

 

 


 

 


(1.7)

 

 


 

 


 

 


 

 


(4.2)

Net income attributable to
  controlling interests

 

$


104.7 

 

$


15.3 

 

$


120.0 

 

$


11.6 

 

$


266.4 

 


$


(272.7)

 


$


245.3 

Total assets

 

$

8,840.5 

 

$

1,352.8 

 

$

3,124.9 

 

$

88.1 

 

$

5,911.0 

 

$

(5,311.0)

 

$

14,006.3 

Cash flows for total investments
 in plant (2)

 

$


374.1 

 

$


39.1 

 

$


190.5 

 

$


 

$


30.7 

 


$


 


$


634.4 


 

 

For the Three Months Ended September 30, 2008

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

 

 

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

1,283.8 

 

$

92.3 

 

$

110.0 

 

$

23.1 

 

$

106.2 

 

$

(108.5)

 

$

1,506.9 

Depreciation and amortization

 

 

(161.9)

 

 

(6.7)

 

 

(12.8)

 

 

(0.2)

 

 

(2.8)

 

 

0.2 

 

 

(184.2)

Other operating expenses

 

 

(1,044.4)

 

 

(84.5)

 

 

(36.4)

 

 

(16.4)

 

 

(96.1)

 

 

104.2 

 

 

(1,173.6)

Operating income

 

 

77.5 

 

 

1.1 

 

 

60.8 

 

 

6.5 

 

 

7.3 

 

 

(4.1)

 

 

149.1 

Interest expense, net of AFUDC

 

 

(41.8)

 

 

(5.1)

 

 

(14.4)

 

 

(1.3)

 

 

(10.9)

 

 

2.6 

 

 

(70.9)

Interest income

 

 

11.1 

 

 

0.4 

 

 

0.2 

 

 

0.4 

 

 

2.5 

 

 

(2.6)

 

 

12.0 

Other income, net

 

 

(0.6)

 

 

 

 

6.4 

 

 

 

 

33.0 

 

 

(33.1)

 

 

5.7 

Income tax (expense)/benefit

 

 

(7.5)

 

 

1.3 

 

 

(16.6)

 

 

(1.0)

 

 

2.0 

 

 

 

 

(21.8)

Net income/(loss)

 

 

38.7 

 

 

(2.3)

 

 

36.4 

 

 

4.6 

 

 

33.9 

 

 

(37.2)

 

 

74.1 

Net income attributable to
   noncontrolling interests

 

 


(0.9)

 

 


 

 


(0.5)

 

 


 

 


 

 


 

 


(1.4)

Net income/(loss) attributable to
  controlling interests

 

$


37.8 

 

$


(2.3)

 

$


35.9 

 

$


4.6 

 

$


33.9 

 


$


(37.2)

 


$


72.7 




28





 

 

For the Nine Months Ended September 30, 2008

 

 

Regulated Companies

 

 

 

 

Distribution (1)

 

 

 

 

 

 

 

 

 

 

(Millions of Dollars)

 

Electric

 

Gas

 

Transmission

 

NU Enterprises

 

Other

 

Eliminations

 

Total

Operating revenues

 

$

3,580.6 

 

$

404.9 

 

$

306.3

 

$

87.0 

 

$

306.3 

 

$

(332.9)

 

$

4,352.2 

Depreciation and amortization

 

 

(427.7)

 

 

(19.7)

 

 

(35.1)

 

 

(0.4)

 

 

(10.0)

 

 

0.6 

 

 

(492.3)

Other operating expenses

 

 

(2,915.0)

 

 

(346.1)

 

 

(101.6)

 

 

(70.8)

 

 

(332.2)

 

 

325.3 

 

 

(3,440.4)

Operating income/(loss)

 

 

237.9 

 

 

39.1 

 

 

169.6

 

 

15.8 

 

 

(35.9)

 

 

(7.0)

 

 

419.5 

Interest expense, net of AFUDC

 

 

(122.0)

 

 

(15.2)

 

 

(39.7)

 

 

(4.3)

 

 

(25.9)

 

 

7.5 

 

 

(199.6)

Interest income

 

 

12.9 

 

 

0.4 

 

 

2.3

 

 

0.9 

 

 

6.4 

 

 

(8.4)

 

 

14.5 

Other income, net

 

 

4.8 

 

 

0.1 

 

 

22.1

 

 

 

 

143.4 

 

 

(143.3)

 

 

27.1 

Income tax (expense)/benefit

 

 

(31.3)

 

 

(9.1)

 

 

(49.2)

 

 

(3.7)

 

 

26.0 

 

 

(1.1)

 

 

(68.4)

Net income

 

 

102.3 

 

 

15.3 

 

 

105.1 

 

 

8.7 

 

 

114.0 

 

 

(152.3)

 

 

193.1 

Net income attributable to
  noncontrolling interests

 

 


(2.7)

 

 


 

 


(1.5)

 

 


 

 


 

 


 

 


(4.2)

Net income attributable to
  controlling interests

 

$


99.6 

 

$


15.3 

 

$


103.6 

 

$


8.7 

 

$


114.0 

 


$


(152.3)

 


$


188.9 

Cash flows for total investments
  in plant (2)

 

$


326.3 

 

$


39.1 

 

$


566.7 

 

$


 

$


19.7 

 


$


 


$


951.8 


(1)

Includes PSNH's generation activities.  


(2)

Cash flows for total investments in plant included in the segment information above are cash capital expenditures that do not include amounts incurred but not paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension and PBOP expense or income.


The information related to the distribution and transmission segments for CL&P, PSNH and WMECO for the three and nine months ended September 30, 2009 and 2008 is as follows:


 

 

CL&P - For the Three Months Ended September 30, 2009

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

741.2 

 

$

118.1 

 

859.3 

Depreciation and amortization

 

 

(80.9)

 

 

(14.5)

 

 

(95.4)

Other operating expenses

 

 

(619.8)

 

 

(34.0)

 

 

(653.8)

Operating income

 

 

40.5 

 

 

69.6 

 

 

110.1 

Interest expense, net of AFUDC

 

 

(24.3)

 

 

(16.5)

 

 

(40.8)

Interest income

 

 

0.6 

 

 

0.1 

 

 

0.7 

Other income, net

 

 

3.8 

 

 

2.5 

 

 

6.3 

Income tax expense

 

 

(8.4)

 

 

(21.4)

 

 

(29.8)

Net income

 

$

12.2 

 

$

34.3 

 

$

46.5 


 

 

CL&P - For the Nine Months Ended September 30, 2009

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

2,258.5 

 

$

340.2 

 

2,598.7 

Depreciation and amortization

 

 

(238.5)

 

 

(43.8)

 

 

(282.3)

Other operating expenses

 

 

(1,881.7)

 

 

(91.1)

 

 

(1,972.8)

Operating income

 

 

138.3 

 

 

205.3 

 

 

343.6 

Interest expense, net of AFUDC

 

 

(69.9)

 

 

(46.3)

 

 

(116.2)

Interest income

 

 

1.9 

 

 

0.7 

 

 

2.6 

Other income, net

 

 

11.1 

 

 

4.2 

 

 

15.3 

Income tax expense

 

 

(23.9)

 

 

(63.3)

 

 

(87.2)

Net income

 

$

57.5 

 

$

100.6 

 

158.1 

Total assets

 

$

5,782.7 

 

$

2,487.8 

 

8,270.5 

Cash flows for total investments in plant (2)

 

$

209.9 

 

$

121.7 

 

$

331.6 




29





 

 

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

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

891.0 

 

$

89.5 

 

980.5 

Depreciation and amortization

 

 

(123.9)

 

 

(10.3)

 

 

(134.2)

Other operating expenses

 

 

(720.6)

 

 

(27.5)

 

 

(748.1)

Operating income

 

 

46.5 

 

 

51.7 

 

 

98.2 

Interest expense, net of AFUDC

 

 

(25.7)

 

 

(12.4)

 

 

(38.1)

Interest income

 

 

7.3 

 

 

0.5 

 

 

7.8 

Other income, net

 

 

(0.2)

 

 

5.4 

 

 

5.2 

Income tax expense

 

 

(3.5)

 

 

(14.1)

 

 

(17.6)

Net income

 

$

24.4 

 

$

31.1 

 

$

55.5 


 

 

CL&P - For the Nine Months Ended September 30, 2008

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

2,444.8 

 

$

243.1 

 

2,687.9 

Depreciation and amortization

 

 

(332.7)

 

 

(27.9)

 

 

(360.6)

Other operating expenses

 

 

(1,975.5)

 

 

(74.2)

 

 

(2,049.7)

Operating income

 

 

136.6 

 

 

141.0 

 

 

277.6 

Interest expense, net of AFUDC

 

 

(75.4)

 

 

(34.1)

 

 

(109.5)

Interest income

 

 

8.6 

 

 

1.8 

 

 

10.4 

Other income, net

 

 

4.7 

 

 

19.7 

 

 

24.4 

Income tax expense

 

 

(14.6)

 

 

(40.4)

 

 

(55.0)

Net income

 

$

59.9

 

$

88.0

 

147.9 

Cash flows for total investments in plant (2)

 

$

200.6

 

$

478.0

 

$

678.6 


 

 

PSNH - For the Three Months Ended September 30, 2009

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

254.7 

 

$

20.4 

 

275.1 

Depreciation and amortization

 

 

(28.4)

 

 

(2.4)

 

 

(30.8)

Other operating expenses

 

 

(202.6)

 

 

(7.6)

 

 

(210.2)

Operating income

 

 

23.7 

 

 

10.4 

 

 

34.1 

Interest expense, net of AFUDC

 

 

(9.9)

 

 

(1.8)

 

 

(11.7)

Interest income

 

 

0.4 

 

 

 

 

0.4 

Other income, net

 

 

1.5 

 

 

0.4 

 

 

1.9 

Income tax expense

 

 

(5.0)

 

 

(3.5)

 

 

(8.5)

Net income

 

$

10.7 

 

$

5.5 

 

$

16.2 


 

 

PSNH - For the Nine Months Ended September 30, 2009

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

792.2 

 

$

53.5 

 

845.7 

Depreciation and amortization

 

 

(73.0)

 

 

(6.8)

 

 

(79.8)

Other operating expenses

 

 

(644.0)

 

 

(20.5)

 

 

(664.5)

Operating income

 

 

75.2 

 

 

26.2 

 

 

101.4 

Interest expense, net of AFUDC

 

 

(30.0)

 

 

(4.8)

 

 

(34.8)

Interest income

 

 

2.1 

 

 

0.1 

 

 

2.2 

Other income, net

 

 

3.2 

 

 

1.1 

 

 

4.3 

Income tax expense

 

 

(14.3)

 

 

(8.5)

 

 

(22.8)

Net income

 

$

36.2 

 

$

14.1 

 

50.3 

Total assets

 

$

2,179.5 

 

$

429.8 

 

2,609.3 

Cash flows for total investments in plant (2)

 

$

134.7 

 

$

34.7 

 

$

169.4 




30





 

 

PSNH - For the Three Months Ended September 30, 2008

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

286.9 

 

$

14.1 

 

301.0 

Depreciation and amortization

 

 

(26.5)

 

 

(1.9)

 

 

(28.4)

Other operating expenses

 

 

(237.1)

 

 

(6.1)

 

 

(243.2)

Operating income

 

 

23.3 

 

 

6.1 

 

 

29.4 

Interest expense, net of AFUDC

 

 

(11.8)

 

 

(1.6)

 

 

(13.4)

Interest income

 

 

2.3 

 

 

 

 

2.3 

Other income, net

 

 

(0.2)

 

 

0.6 

 

 

0.4 

Income tax expense

 

 

(2.9)

 

 

(1.5)

 

 

(4.4)

Net income

 

$

10.7 

 

$

3.6 

 

$

14.3 


 

 

PSNH - For the Nine Months Ended September 30, 2008

(Millions of Dollars)

 

Distribution (1)

 

Transmission

 

Total

Operating revenues

 

$

822.8 

 

$

44.0 

 

866.8 

Depreciation and amortization

 

 

(61.2)

 

 

(5.3)

 

 

(66.5)

Other operating expenses

 

 

(687.6)

 

 

(18.4)

 

 

(706.0)

Operating income

 

 

74.0 

 

 

20.3 

 

 

94.3 

Interest expense, net of AFUDC

 

 

(33.6)

 

 

(3.9)

 

 

(37.5)

Interest income

 

 

2.6 

 

 

0.4 

 

 

3.0 

Other income, net

 

 

0.4 

 

 

1.9 

 

 

2.3 

Income tax expense

 

 

(11.1)

 

 

(6.3)

 

 

(17.4)

Net income

 

$

32.3 

 

$

12.4 

 

44.7 

Cash flows for total investments in plant (2)

 

$

101.5 

 

$

63.3 

 

$

164.8 


 

 

WMECO - For the Three Months Ended September 30, 2009

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

86.2 

 

$

10.4 

 

96.6 

Depreciation and amortization

 

 

(7.9)

 

 

(0.8)

 

 

(8.7)

Other operating expenses

 

 

(67.8)

 

 

(3.0)

 

 

(70.8)

Operating income

 

 

10.5 

 

 

6.6 

 

 

17.1 

Interest expense, net of AFUDC

 

 

(4.0)

 

 

(0.8)

 

 

(4.8)

Interest income

 

 

(0.6)

 

 

 

 

(0.6)

Other income, net

 

 

0.7 

 

 

0.1 

 

 

0.8 

Income tax expense

 

 

(1.7)

 

 

(2.3)

 

 

(4.0)

Net income

 

$

4.9 

 

$

3.6 

 

$

8.5 


 

 

WMECO - For the Nine Months Ended September 30, 2009

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

284.6 

 

$

25.2 

 

309.8 

Depreciation and amortization

 

 

(21.4)

 

 

(2.4)

 

 

(23.8)

Other operating expenses

 

 

(231.2)

 

 

(9.2)

 

 

(240.4)

Operating income

 

 

32.0 

 

 

13.6 

 

 

45.6 

Interest expense, net of AFUDC

 

 

(12.2)

 

 

(2.3)

 

 

(14.5)

Interest income

 

 

(0.4)

 

 

 

 

(0.4)

Other income, net

 

 

1.3 

 

 

0.3 

 

 

1.6 

Income tax expense

 

 

(7.2)

 

 

(4.6)

 

 

(11.8)

Net income

 

$

13.5 

 

$

7.0 

 

20.5 

Total assets

 

$

859.8 

 

$

212.9 

 

1,072.7 

Cash flows for total investments in plant (2)

 

$

29.6 

 

$

34.1 

 

$

63.7 




31





 

 

WMECO - For the Three Months Ended September 30, 2008

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

105.9 

 

$

6.4 

 

112.3 

Depreciation and amortization

 

 

(11.4)

 

 

(0.7)

 

 

(12.1)

Other operating expenses

 

 

(86.8)

 

 

(2.6)

 

 

(89.4)

Operating income

 

 

7.7 

 

 

3.1 

 

 

10.8 

Interest expense, net of AFUDC

 

 

(4.3)

 

 

(0.4)

 

 

(4.7)

Interest income

 

 

1.4 

 

 

(0.3)

 

 

1.1 

Other income, net

 

 

(0.2)

 

 

0.3 

 

 

0.1 

Income tax expense

 

 

(1.0)

 

 

(1.1)

 

 

(2.1)

Net income

 

$

3.6 

 

$

1.6 

 

$

5.2 


 

 

WMECO - For the Nine Months Ended September 30, 2008

(Millions of Dollars)

 

Distribution

 

Transmission

 

Total

Operating revenues

 

$

313.2 

 

$

19.1 

 

332.3 

Depreciation and amortization

 

 

(33.8)

 

 

(2.0)

 

 

(35.8)

Other operating expenses

 

 

(252.1)

 

 

(8.8)

 

 

(260.9)

Operating income

 

 

27.3 

 

 

8.3 

 

 

35.6 

Interest expense, net of AFUDC

 

 

(13.1)

 

 

(1.6)

 

 

(14.7)

Interest income

 

 

1.7 

 

 

 

 

1.7 

Other income, net

 

 

(0.2)

 

 

0.5 

 

 

0.3 

Income tax expense

 

 

(5.6)

 

 

(2.5)

 

 

(8.1)

Net income

 

$

10.1 

 

$

4.7 

 

14.8 

Cash flows for total investments in plant (2)

 

$

24.2 

 

$

25.4 

 

$

49.6 


(1)

Includes PSNH's generation activities.  


(2)

Cash flows for total investments in plant included in the segment information above are cash capital expenditures that do not include amounts incurred but not paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension and PBOP expense or income.


12.

COMMON SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST (NU)

A summary of the changes in common shareholders' equity and noncontrolling interest of NU for the three and nine months ended September 30, 2009 and 2008 is as follows:


 

 

For the Three Months Ended September 30,

 

 

2009

 

2008



(Millions of Dollars)

 

Common
Shareholders'
Equity

 

Noncontrolling
Interest

 

Common
Shareholders'
Equity

 

Noncontrolling
Interest

Balance, beginning of period

 

$

3,501.8 

 

$

116.2 

 

$

2,939.5 

 

$

116.2 

Net income

 

 

66.2 

 

 

 

 

74.1 

 

 

Dividends on common shares

 

 

(41.9)

 

 

 

 

 

 

Dividends on preferred shares of CL&P

 

 

(1.4)

 

 

(1.4)

 

 

(1.4)

 

 

(1.4)

Other transactions, net

 

 

7.5 

 

 

 

 

5.7 

 

 

Net income attributable to noncontrolling interests

 

 

 

 

1.4 

 

 

 

 

1.4 

Other comprehensive income/(loss) (Note 6)

 

 

1.2 

 

 

 

 

(1.9)

 

 

Balance, end of period

 

$

3,533.4 

 

$

116.2 

 

$

3,016.0 

 

$

116.2 




32





 

 

For the Nine Months Ended September 30,

 

 

2009

 

2008



(Millions of Dollars)

 

Common
Shareholders'
Equity

 

Noncontrolling
Interest

 

Common
Shareholders'
Equity

 

Noncontrolling
Interest

Balance, beginning of period

 

$

3,020.3 

 

$

116.2 

 

$

2,913.8 

 

$

116.2 

Net income

 

 

249.5 

 

 

 

 

193.1 

 

 

Dividends on common shares

 

 

(121.0)

 

 

 

 

(95.7)

 

 

Dividends on preferred shares of CL&P

 

 

(4.2)

 

 

(4.2)

 

 

(4.2)

 

 

(4.2)

Issuance of common shares

 

 

388.5 

 

 

 

 

5.0 

 

 

Capital stock expenses, net

 

 

(12.5)

 

 

 

 

 

 

Other transactions, net

 

 

13.3 

 

 

 

 

10.5 

 

 

Net income attributable to noncontrolling interests

 

 

-  

 

 

4.2 

 

 

 

 

4.2 

Other comprehensive loss (Note 6)

 

 

(0.5)

 

 

 

 

(6.5)

 

 

Balance, end of period

 

$

3,533.4 

 

$

116.2 

 

$

3,016.0 

 

$

116.2 




33




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of Northeast Utilities:


We have reviewed the accompanying condensed consolidated balance sheet of Northeast Utilities and subsidiaries (the "Company") as of September 30, 2009, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2009 and 2008, and of cash flows for the nine-month periods ended September 30, 2009 and 2008.  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.


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, 2008, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for the year then ended prior to retrospective adjustment to reflect new accounting guidance for non-controlling interests in consolidated financial statements, (not presented herein); and in our report dated February 27, 2009 (which report included an explanatory paragraph related to the adoption of new accounting guidance for fair value measurements, as of January 1, 2008), we expressed an unqualified opinion on those consolidated financial statements.  We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2008 consolidated balance sheet of Northeast Utilities and subsidiaries (not presented herein).  In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted condensed consolidating balance sheet as of December 31, 2008.



/s/

Deloitte & Touche LLP

 

Deloitte & Touche LLP



Hartford, Connecticut

November 6, 2009




34




THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES



35





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

September 30,

 

December 31,

(Thousands of Dollars)

2009

 

2008

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

  Cash

$                   2,221 

 

$                          - 

  Receivables, less provision for uncollectible

 

 

 

    accounts of $29,285 in 2009 and $23,956 in 2008

375,074 

 

416,304 

  Accounts receivable from affiliated companies

1,529 

 

11,215 

  Notes receivable from affiliated companies

89,975 

 

  Unbilled revenues

105,247 

 

127,844 

  Materials and supplies - current

65,604 

 

70,676 

  Derivative assets - current

13,795 

 

30,478 

  Prepayments and other

31,214 

 

15,685 

 

684,659 

 

672,202 

 

 

 

 

Property, Plant and Equipment:

 

 

 

  Electric utility

6,417,044 

 

6,244,705 

     Less: Accumulated depreciation

1,414,809 

 

1,346,062 

 

5,002,235 

 

4,898,643 

  Construction work in progress

260,607 

 

190,481 

 

5,262,842 

 

5,089,124 

 

 

 

 

Deferred Debits and Other Assets:

 

 

 

  Regulatory assets

2,020,036 

 

2,274,088 

  Derivative assets - long-term

207,004 

 

215,288 

  Other

95,955 

 

85,416 

 

2,322,995 

 

2,574,792 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

$            8,270,496 

 

$            8,336,118 

 

 

 

 

 

 

 

 

 

 

 

 

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

 




36





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

September 30,

 

December 31,

(Thousands of Dollars)

2009

 

2008

 

 

 

 

LIABILITIES AND CAPITALIZATION

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

  Notes payable to banks

$                 32,991 

 

$               187,973 

  Notes payable to affiliated companies

 

102,725 

  Long-term debt - current portion

62,000 

 

  Accounts payable

212,997 

 

353,584 

  Accounts payable to affiliated companies

32,561 

 

57,053 

  Accrued taxes

74,968 

 

24,839 

  Accrued interest

45,388 

 

37,567 

  Derivative liabilities - current

8,368 

 

8,873 

  Other

85,206 

 

92,444 

 

554,479 

 

865,058 

 

 

 

 

Rate Reduction Bonds

240,336 

 

378,195 

 

 

 

 

Deferred Credits and Other Liabilities:

 

 

 

  Accumulated deferred income taxes

882,914 

 

811,405 

  Accumulated deferred investment tax credits

16,968 

 

18,805 

  Deferred contractual obligations

119,379 

 

132,687 

  Regulatory liabilities

325,397 

 

363,547 

  Derivative liabilities - long-term

810,816 

 

848,106 

  Accrued pension

72,053 

 

89,254 

  Accrued postretirement benefits

90,466 

 

98,587 

  Other

207,657 

 

215,620 

 

2,525,650 

 

2,578,011 

Capitalization:

 

 

 

  Long-Term Debt

2,520,194 

 

2,270,414 

 

 

 

 

  Preferred Stock Not Subject to Mandatory Redemption

116,200 

 

116,200 

  Common Stockholder's Equity:

 

 

 

    Common stock, $10 par value - authorized

 

 

 

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

 

 

 

      in 2009 and 2008

60,352 

 

60,352 

    Capital surplus, paid in

1,570,740 

 

1,454,198 

    Retained earnings

685,819 

 

617,276 

    Accumulated other comprehensive loss

(3,274)

 

(3,586)

  Common Stockholder's Equity

2,313,637 

 

2,128,240 

Total Capitalization

4,950,031 

 

4,514,854 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Capitalization

$            8,270,496 

 

$            8,336,118 

 

   

 

 

 

 

 

 

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

 




37





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(Thousands of Dollars)

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$             859,283 

 

$           980,507 

 

$          2,598,723 

 

$          2,687,881 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

  Operation -

 

 

 

 

 

 

 

     Fuel, purchased and net interchange power

419,620 

 

522,613 

 

1,317,159 

 

1,414,506 

     Other

149,302 

 

140,727 

 

419,887 

 

402,099 

  Maintenance

31,215 

 

35,863 

 

86,113 

 

98,297 

  Depreciation

46,519 

 

40,740 

 

140,000 

 

119,464 

  Amortization of regulatory assets, net

7,911 

 

55,105 

 

24,551 

 

131,093 

  Amortization of rate reduction bonds

40,976 

 

38,353 

 

117,725 

 

110,033 

  Taxes other than income taxes

53,648 

 

48,953 

 

149,736 

 

134,787 

    Total operating expenses

749,191 

 

882,354 

 

2,255,171 

 

2,410,279 

Operating Income

110,092 

 

98,153 

 

343,552 

 

277,602 

 

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

 

 

  Interest on long-term debt

33,514 

 

28,053 

 

99,486 

 

77,052 

  Interest on rate reduction bonds

4,455 

 

6,997 

 

15,342 

 

22,808 

  Other interest

2,838 

 

3,074 

 

1,420 

 

9,635 

    Interest expense, net

40,807 

 

38,124 

 

116,248 

 

109,495 

Other Income, Net

7,070 

 

13,059 

 

17,948 

 

34,757 

Income Before Income Tax Expense

76,355 

 

73,088 

 

245,252 

 

202,864 

Income Tax Expense

29,818 

 

17,553 

 

87,178 

 

55,006 

Net Income

$               46,537 

   

$             55,535 

 

$             158,074 

   

$             147,858 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 




38





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

(Unaudited)

 

 

 

 

Nine Months Ended September 30,

 (Thousands of Dollars)

2009

 

2008

 

 

 

 

Operating Activities:

 

 

 

Net income

$               158,074 

 

$                 147,858 

Adjustments to reconcile net income to net cash

 

 

 

 flows provided by operating activities:

 

 

 

Bad debt expense

11,170 

 

5,450 

Depreciation

140,000 

 

119,464 

Deferred income taxes

34,458 

 

18,313 

Allowance for equity funds used during construction

(3,533)

 

(19,352)

Pension income and PBOP expense, net of capitalized portion, and contributions

(4,329)

 

(16,839)

Regulatory overrecoveries/(refunds and underrecoveries), net

51,378 

 

(99,900)

Amortization of regulatory assets, net

24,551 

 

131,093 

Amortization of rate reduction bonds

117,725 

 

110,033 

Deferred contractual obligations

(14,059)

 

(16,967)

Other

(7,860)

 

(12,276)

Changes in current assets and liabilities:

 

 

 

Receivables and unbilled revenues, net

52,715 

 

(68,702)

Investments in securitizable assets

 

(25,787)

Materials and supplies

(6,205)

 

(13,700)

Other current assets

(15,395)

 

(18,64