Amendment No. 1
This amendment to the registrant’s Transition Report on Form 10-K for the transition period from January 1, 2002 to March 31, 2002 is being filed to restate the consolidated financial statements for each of the three years in the period ended December 31, 2001, as well as the thirty day period ended January 30, 2002 and the sixty day period ended March 31, 2002.
On January 31, 2002, the acquisition of Niagara Mohawk Holdings, Inc. (“Holdings”) by National Grid Group plc (“NGG”) was completed. The acquisition was accounted for under the purchase method.
Subsequent to the acquisition by NGG, Niagara Mohawk identified certain matters in the application of generally accepted accounting principles (“GAAP”) in the pre-acquisition accounts of Niagara Mohawk which required Niagara Mohawk to restate its consolidated financial statements as of December 31, 1998 and for each of the years in the three year period ended December 31, 2001. The restatement reflects adjustments pertaining to (i) regulatory liabilities associated with certain account reconciliations and related carrying charges, (ii) a regulatory asset and (iii) uninsured claims. For further discussion see Item 8, Note 12 in the footnotes of the consolidated financial statements and the restatement discussion within Management’s Discussion and Analysis in Item 7.
In order to preserve the nature and character of the disclosures set forth in such items as originally filed, no attempt has been made in this amendment to update any disclosures not affected by the restatement described above, except for the adoption of Financial Accounting Standard No. “145 Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). See Item 8, Note 13 in the footnotes of the consolidated financial statements for further discussion of the effects of adopting SFAS 145. Except as required to reflect the effects of the restatement, all information contained in this amendment is stated as of the date of the original filing.
1. On June 22, 1993, Niagara Mohawk and 20 other industrial entities, as well as the former owner/operator of the Pfohl Brothers Landfill near Buffalo, New York, were sued in New York State Supreme Court, Erie County, by a group of residents living in the area surrounding the landfill. The plaintiffs seek compensation for alleged economic loss and property damage claimed to have resulted from exposure to contamination associated with the landfill. In addition, since January 18, 1995, Niagara Mohawk has been named as a defendant or third party defendant in a series of toxic tort actions filed in federal or state courts in the Buffalo area. These actions allege exposure on the part of plaintiffs or plaintiffs’ decedents to toxic chemicals associated with the landfill, resulting in the alleged causation of property damage and/or physical injury. The plaintiffs seek compensatory and punitive damages. Niagara Mohawk has filed answers responding to the claims put forth in these suits, denying liability as to any of the claimed conditions or damages.
Niagara Mohawk is unable to predict at this time the probable outcome of these proceedings, which at present remain in the discovery stage (although the discovery process has been held in abeyance pending the outcome of the appeal of dismissal of certain of the actions on a statute of limitations basis). Niagara Mohawk, through participation in the Pfohl Brothers Landfill Steering Committee, is assisting in the implementation of a remedial program pursuant to a DEC administrative consent order executed in April 2001. The remediation program is expected to be completed by the end of 2002, with total construction costs projected to reach $23.5 million. In the context of a formal remedial cost allocation proceedings conducted on behalf of the Committee, it has been determined that Niagara Mohawk’s potential contribution of industrial wastes to the landfill was minor. Further, it is Niagara Mohawk’s position that any materials attributable to Niagara Mohawk, which may have been disposed of at the landfill, are not causally related to any physical condition alleged by plaintiffs in the various lawsuits associated with the landfill. Niagara Mohawk does not believe that the outcome of these proceedings will have a material adverse effect on its results of operations or financial condition.
2. In November 1993, Fourth Branch Associates Mechanicville (“Fourth Branch”) filed an action against Niagara Mohawk and several of its officers and employees in the New York State Supreme Court, seeking compensatory damages of $50 million, punitive damages of $100 million, and injunctive and other related relief. The lawsuit grows out of Niagara Mohawk’s termination of a contract for Fourth Branch to operate and maintain a hydroelectric plant Niagara Mohawk owned in the town of Halfmoon, New York. Fourth Branch’s complaint also alleges claims based on the inability of Fourth Branch and Niagara Mohawk to agree on terms for the purchase of power from a new facility that Fourth Branch hoped to construct at the Mechanicville site. In January 1997, Niagara Mohawk was successful in having dismissed eleven of the thirteen causes of action. The remaining claims are for alleged breach of contract and breach of duty of good faith and fair dealing. Niagara Mohawk filed a motion for summary judgment in November 2001 and Fourth Branch filed a cross motion for summary judgment. The trial date is currently scheduled for July 24, 2002.
Fourth Branch also commenced a condemnation proceeding in Federal District Court to obtain title to the project property. Niagara Mohawk’s motion for summary judgment was granted by the Court.
Fourth Branch submitted a unilateral offer of settlement to FERC. In November 1999, FERC issued a comprehensive order rejecting Fourth Branch’s unilateral offer of settlement, dismissing Fourth Branch’s complaint of anti-competitive conduct by Niagara Mohawk, and determining that there had been an implied surrender of the FERC license for the Mechanicville Project. Fourth Branch filed various appeals. On June 19, 2001, the U.S. Court of Appeals, D.C. Circuit denied Fourth Branch’s appeal.
In August 2000, FERC staff directed Niagara Mohawk and Fourth Branch to file a plan to cover decommissioning or any other proposed alternatives. Both parties have submitted such plans to the FERC. FERC Staff issued a draft environmental assessment dated November 13, 2001, in which Staff concluded that Niagara Mohawk’s closure plan offered the only feasible alternative. On February 28, 2002, FERC issued an order accepting license surrender and directing the implementation of Niagara Mohawk’s closure plan. Fourth Branch sought rehearing of this order in an April 1, 2002 filing with FERC, a request FERC has not yet acted upon.
Niagara Mohawk is unable to predict the ultimate disposition of the lawsuit and FERC case referred to above.
3. On May 25, 2000, the DEC issued an air pollution notice of violation to Niagara Mohawk regarding the operation of its two formerly owned coal-fired generation plants (Huntley and Dunkirk). The notice of violation was also issued to NRG Energy, Inc. (“NRG”), the current owner and operator of both plants. The notice alleges violations of the federal Clean Air Act and the New York State Environmental Conservation Law resulting from the alleged failure of the companies to obtain permits for plant modifications and the alleged failure to install air pollution control equipment. While no specific relief was sought in the notice of violation, the DEC and the New York State Attorney General indicated in meetings with Niagara Mohawk and NRG that they sought substantial fines against Niagara Mohawk and NRG as well as the imposition of pollution controls. The New York State Attorney General also indicated that they will be pursuing mitigation of alleged environmental harm. It is Niagara Mohawk’s position that the cost of pollution controls and mitigation should be borne by NRG.
In May 2001, the New York State Attorney General advised Niagara Mohawk and NRG of its intent to file suit, alleging that the plants are in violation of the federal Clean Air Act. On July 13, 2001, Niagara Mohawk filed a declaratory judgment action against NRG in New York State Supreme Court. Niagara Mohawk is seeking a declaratory judgment that NRG is responsible for any control upgrades and mitigation resulting from the above-referenced enforcement action. The litigation is presently in the discovery phase.
On January 10, 2002, New York State filed a civil action against Niagara Mohawk and NRG Energy in U.S. District Court for the Western District of New York for alleged violations of the federal Clean Air Act at the Dunkirk and Huntley power plants. On March 29, 2002, Niagara Mohawk filed a motion to dismiss the State’s complaint. Niagara Mohawk is unable to predict whether or not the results of this enforcement action will have an adverse material effect on its financial position and results of operation or whether Niagara Mohawk’s action against NRG will be successful.
4. On October 2, 2000, Niagara Mohawk filed lawsuits in New York Supreme Court against the owners of three power plants (the Plants) which Niagara Mohawk sold in 1999 to three affiliates of NRG, Huntley Power LLC, Dunkirk Power LLC and Oswego Harbor, LLC (the Defendants). These suits (collectively referred to herein as the State Court Actions) were filed to collect on invoices for electricity furnished by Niagara Mohawk to the Defendants for use in the Plants since the Plants were sold in 1999. In its Complaints in the State Court Actions, Niagara Mohawk initially sought approximately $8 million in damages, which represented Niagara Mohawk’s retail delivery rates filed with and approved by the PSC applied to the Defendants’ usage as of the date those Complaints were filed. Although the Defendants have made approximately $6.9 million in payments on what they believe is the undisputed portion of the balance they owe Niagara Mohawk, the balance owed, according to Niagara Mohawk’s records, has grown to approximately $26 million as of May 22, 2002.
The Defendants asserted in 2000 that the FERC had exclusive jurisdiction. In 2001, the FERC issued orders in cases involving other parties that affirmed the jurisdiction of state commissions to authorize retail delivery charges for station service provided by distribution companies to generators like NRG. In May 2002, however, the FERC issued two additional orders in similar cases. FERC stated that, to the extent deliveries are made over facilities classified as distribution, the states have jurisdiction to assess charges and, to the extent deliveries are made over facilities classified as transmission only, the FERC has exclusive jurisdiction over such delivery charges. Niagara Mohawk does not believe that FERC intended to prevent utilities from continuing to assess retail delivery charges, including but not limited to applicable stranded cost charges, on generators in cases where station service power is delivered over high voltage facilities often classified as transmission, or if it had such intent, to assert its jurisdiction with respect to disputes over past charges. Niagara Mohawk has asked FERC to clarify the scope of its orders.
* The third quarter of 2001 includes non-cash write-off of $123 million to reflect the disallowed nuclear investment costs as part of a regulatory settlement agreement related to the sale of the nuclear assets and previously deferred investment tax credits related to the nuclear assets of $79.7 million.
** All of Niagara Mohawk’s shares of common stock are owned by its parent company, therefore, per share data
is not relevant.
*** For the 60 day period ended March 31, 2002, amounts have been restated insofar as they relate to Balance Sheet accounts from which restatement amounts from prior periods are carried forward to March 31, 2002.
**** Balance Sheet information for the 30 day period ended January 30, 2002 is not provided.
(1) Amounts for the three months ended March 31, 2001, and for the years ended 2001, 2000, 1999, 1998, and 1997 have been restated. Refer to Note 12 to the consolidated financial statements included herein.
** All of Niagara Mohawk’s shares of common stock are owned by its parent company, therefore, per share data is
not relevant.
*** For the 60 day period ended March 31, 2002, amounts have been restated insofar as they relate to Balance Sheet accounts from which restatement amounts from prior periods are carried forward to March 31, 2002.
**** Balance Sheet information for the 30 day period Ended January 30, 2002 is not provided.
(1) Amounts for the three months ended March 31, 2001, and for the years ended 2001, 2000, 1999, 1998, and 1997 have been restated. Refer to Note 12 to the consolidated financial statements included herein.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the acquisition of Holdings by National Grid Group plc, Niagara Mohawk identified certain matters in the application of generally accepted accounting principles in the pre-acquisition accounts of Niagara Mohawk which required Niagara Mohawk to restate its consolidated financial statements as of December 31, 1998 and for each of the three years in the period ended December 31, 2001. The restatement reflects adjustments pertaining to (i) regulatory liabilities associated with certain account reconciliations and related carrying charges, (ii) a regulatory asset and (iii) uninsured claims. A description of each of the adjustments follows:
Regulatory liabilities: Primarily during years prior to 1999, Niagara Mohawk should have recorded certain net regulatory liabilities to customers in connection with reconciliations of revenues received to costs incurred pursuant to New York State Public Service Commission (the “Commission”) requirements. Additionally, beginning in 1995, Niagara Mohawk failed to record a regulatory liability for interest charges on internal reserves for funding required to employee benefit plans consistent with the Commission’s Statement of Policy and Order Concerning the Accounting and Ratemaking Treatment for Pensions and Postretirement Benefits Other than Pensions, Case No. 91-M-0890 (September 7, 1993).
These net adjustments to regulatory liabilities result in a net decrease in pre-tax income of $19 million in 2001, $6 million in 2000 and $8 million in 1999, as well as an after-tax reduction of retained earnings of $47 million at December 31, 1998.
Regulatory asset: Niagara Mohawk had recorded a regulatory asset of $27 million in connection with the establishment of a portion of its allowance for doubtful accounts. This regulatory asset was primarily recorded during periods prior to 1999. In hindsight, it does not appear that there was a basis to consider this balance probable of recovery. Eliminating this regulatory asset reduces pre-tax income by $2 million in 1999. Additionally, this adjustment results in an after-tax reduction to retained earnings of $16 million at December 31, 1998.
Uninsured claims liability: In the pre-acquisition period, Niagara Mohawk did not record an accrual for the estimated uninsured claims liability. Niagara Mohawk considered these estimated claims to be probable of payment at each of the respective period ends, but accounted for them on a cash basis of payments as opposed to accrual accounting. As of December 31, 1998, this liability should have been $10 million. Recording this liability increases pre-tax income in 2001 by $2 million and decreases pre-tax income by $2 million in both 2000 and 1999 and reduces after-tax retained earnings by $7 million at December 31, 1998.
Refer to Note 12 to the Consolidated Financial Statements included in Item 8 herein for detailed disclosure in the form of tables of the impacts of the restatement on amounts previously reported.
RESTRUCTURING
In recent years, federal and state regulatory initiatives have sought to provide separation of the vertically integrated energy generation, transmission and distribution functions and promote competition and lower prices. This unbundling of services has led to some restructuring throughout the industry. Niagara Mohawk’s response to these developments was to formulate a restructuring strategy and a multi-year rate plan which provided for its exit of the generation business, reduction in the amount of its future over-market purchase power obligations, recovery of its stranded costs and lower prices to customers. Implementation of the restructuring strategy commenced in 1998 with the regulatory approval of the Power Choice rate plan and the consummation of the MRA, and 1999 through 2001 were years punctuated by the further execution of the restructuring strategy.
The year 2000 was a year in which the companies experienced even more significant changes, since Holdings entered into a merger agreement with National Grid, whereby Niagara Mohawk has become an indirect wholly-owned subsidiary of National Grid, effective January 31, 2002.
MERGER WITH NATIONAL GRID
On January 31, 2002, the acquisition of Holdings by National Grid was completed for a value of approximately $3.0 billion in cash and American Depositary Shares. The acquisition is being accounted for by the purchase method, the application of which, including the recognition of goodwill, is being recognized on the books of Niagara Mohawk, the most significant subsidiary of Holdings. The merger transaction resulted in over $1 billion of goodwill, which will be subject to SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill’s impairment. See “Merger Rate Plan” for a discussion of the anticipated future results on Niagara Mohawk and Item 8. Financial Statements and Supplementary Data, - Note 2. Merger with National Grid for further discussion of the merger.
The purchase accounting method requires Niagara Mohawk to revalue its assets and liabilities at their fair value. This revaluation resulted in an increase to Niagara Mohawk’s pension and postretirement benefit liability in the amount of approximately $444.4 million, with a corresponding offsetting increase to a regulatory asset account. See Item 8. Financial Statements and Supplementary Data, - Note 7. Pension and Other Retirement Plans.
VERO
In January 2002, Niagara Mohawk offered a voluntary early retirement offer (“VERO”) to 302 eligible employees in targeted areas in an attempt to reduce its workforce through voluntary programs subsequent to the merger with National Grid. The targeted areas are those where significant workforce reductions are necessary in the combined organization, primarily corporate administrative functions such as finance, human resources, legal and information technology. Eligible employees were non-union employees in the targeted functions who will be age 55 with at least ten years of pension service by March 31, 2004. Niagara Mohawk will set the actual retirement date for individuals based on operational needs. Retirement dates will commence after the closing of the merger and will conclude no later than April 1, 2004.
The number of eligible employees that accepted the VERO was 267 and most were anticipated to retire by June 30, 2002. The high numbers of employees accepting the VERO contributes towards National Grid achieve its objective to reduce the workforce through voluntary programs. Under the Merger Rate Plan, Niagara Mohawk is allowed to record a regulatory asset for separation and early retirement costs. The amortization of such regulatory asset is to occur over ten years, with approximately 69 percent of the amortization of the regulatory asset occurring within the first three years. On January 31, 2002, Niagara Mohawk recorded a regulatory asset of $52.6 million related to the VERO. Such regulatory asset was $48.9 million at March 31, 2002. This regulatory asset is subject to change based on the timing of when employees actually retire and the actual interest rate in effect at the time individual employees retire.
VERO payments will be made from pension assets, thereby limiting the immediate cash impact to Niagara Mohawk.
REGULATORY AGREEMENTS AND THE RESTRUCTURING OF THE REGULATED ELECTRIC UTILITY BUSINESS
Merger Rate Plan. On November 28, 2001, the PSC approved the Merger Rate Plan. This rate plan became effective on January 31, 2002, the closing of the merger. Key terms of the plan are as follows:
• Net customer savings of approximately $1 billion over the next 10 years, compared with rates projected without the merger. This includes a $152 million reduction in delivery charges compared to rates approved in Niagara Mohawk’s current rate agreement, followed by stabilized delivery charges for 10 years, subject to limited adjustments. This equals an expected reduction in Niagara Mohawk electricity delivery rates of more than eight percent, which results in a projected five percent decrease in overall electricity bills, including a projected commodity cost, which will continue to be borne by customers.
• Price-stabilized commodity service for residential and commercial customers for several years, giving those customers significant protection from severe fluctuations in the generation marketplace.
• Agreement to forgo the collection of an estimated $850 million in nuclear-related costs that otherwise would have been collected in rates.
• Permits recovery of and a return on the remaining MRA regulatory asset.
• Agreement to expand Niagara Mohawk’s annual upstate New York economic development efforts by $12.5 million.
• The extension by 16 months of the existing multi-year gas rate settlement agreement, resulting in a freeze in natural gas delivery rates through December 2004.
• Extension of the Low Income Customer Assistance Program and introduction of a special low-income rate.
• Establishment of a Service Quality Assurance Program that calls for up to $24 million in annual penalties or more under certain conditions, if defined customer service goals are not achieved.
• The continuation of the stranded cost recovery provisions under Power Choice with slight modifications.
Although rates will be lower under the Merger Rate Plan, Niagara Mohawk believes cost savings from the merger should enable it to improve its operating results.
Power Choice Rate Reductions and Retail Choice of Electricity Supplier. The PSC approved Niagara Mohawk’s Power Choice agreement on March 20, 1998 and the rate plan was implemented beginning September 1, 1998. The Power Choice agreement outlined Niagara Mohawk’s future structure in the regulated electric business.
The Power Choice agreement established a five-year electric rate plan that reduced class average residential and commercial prices by an aggregate of 3.2 percent over the first three years, beginning September 1, 1998 and further reductions occurring on September 1, 1999 and September 1, 2000.
Effective August 1, 1999, all of Niagara Mohawk’s customers were able to choose their electricity supplier. As of March 31, 2002, 10,774 (6.8 percent) of Niagara Mohawk’s commercial and industrial customers, or approximately 17.6 percent of eligible load, and 42,835 (3.1 percent) residential customers, or approximately 3.6 percent of eligible load, have chosen an electricity supplier other than Niagara Mohawk. See “FERC Order 888 - Open Access” below for a discussion of open transmission access as a result of the formation of the NYISO. Niagara Mohawk will continue to distribute electricity through its transmission and distribution systems for all customers, regardless of supplier, and will be provider of last resort for those customers who do not exercise their right to choose a new electricity supplier. If a customer chooses an alternative supplier, Niagara Mohawk, as allowed under Power Choice, continued to charge the customer for delivery of the energy and for a non-by-passable CTC charge. Niagara Mohawk also gave a credit to the customer for any services provided by the alternative energy supplier that was provided by Niagara Mohawk in the past.
During the term of the Power Choice agreement, Niagara Mohawk was permitted to defer certain incremental costs associated primarily with environmental remediation and changes in laws, regulations, rules and orders. On August 29, 2001, the PSC approved rate plan changes to cover the final two years of the Power Choice agreement. The rate plan changes allow for implementation of the Power Choice agreement to pass-through certain commodity-related costs to customers beginning September 1, 2001. Electric commodity costs, which fluctuate with market conditions, were projected to be higher as a result of recent trends in commodity markets, increases in charges from the NYISO and the expiration of some Niagara Mohawk supply contracts. Partially offsetting the projected increase in commodity costs was a reduction in overall, system-wide rates for electric delivery service of 5.4 percent associated with a lowering of the competitive transition charge with respect to existing supply contracts. The overall average price increase was projected to be 4.9 percent, with the average residential bill increasing 7.9 percent. Such increases were dependent upon actual commodity market conditions. However, residential and commercial customers were provided with a partial price protection from severe fluctuations in the commodity prices through a delivery charge adjustment mechanism. The Merger Rate Plan described above superseded these rates on January 31, 2002, upon the closing of the merger and continues the pass-through of commodity costs.
Beginning in year four of Power Choice, Niagara Mohawk was continuing to recover the cost variations in the indexed swap contracts entered into as part of the MRA, resulting from the indexing provisions of these contracts. As these indexed swap contracts and other contracts expire, the fluctuations in market price of unhedged energy are billed to customers through a commodity adjustment clause. Under the principles established in Power Choice, as these contracts expire, customers who buy electricity from Niagara Mohawk assumed the commodity price risk for energy associated with the expiring contracts. Niagara Mohawk’s rates under Power Choice were designed to permit recovery of the MRA regulatory asset and to permit recovery of, and a return on, the remainder of its assets, as appropriate.
Generation Asset Sales. During 1999, Niagara Mohawk completed the sale of its coal-fired generation plants, its hydro generation plants, and its oil and gas-fired generation plant at Oswego for $860 million. These assets had a combined net book value of approximately $957 million (including materials, supplies and fuel) at the time of their sale. In addition, there were purchase price adjustments of approximately $27 million, primarily due to a lower amount of fuel being delivered to the new owners of the Oswego generation assets than originally anticipated and provided for in the sales agreement. During 2000, Niagara Mohawk completed the sale of its oil and gas-fired plant at Albany for $47.5 million. The Albany plant had a net book value of approximately $36.4 million (including materials, supplies and fuel) at the time of the sale. On January 30, 2001, Niagara Mohawk completed the sale of its 25 percent interest in the Roseton Steam Station for approximately $83.9 million. Niagara Mohawk’s share of the Roseton plant had a net book value of approximately $38.3 million (which includes materials, supplies and fuel) at closing. On November 7, 2001, Niagara Mohawk sold its nuclear assets to Constellation pursuant to which Niagara Mohawk received approximately $271 million in cash and would receive five annual principal and interest payments totaling $332 million. Niagara Mohawk’s share of the plant had a net book value (which includes materials, supplies and fuel) of approximately $1.6 billion as of the closing, excluding the reserve for decommissioning costs. On April 12, 2002, Constellation pre-paid the note to Niagara Mohawk in full, such that Niagara Mohawk received $261.5 million in cash, including $11.7 million in interest.
For a further discussion of these sales, see Item 8. Financial Statements and Supplementary Data, Note 3. Rate and Regulatory Issues and Contingencies. For a discussion on how Niagara Mohawk used the proceeds from the sale of its generation assets, see “Liquidity and Capital Resources.”
Niagara Mohawk signed agreements with the buyers of the plants for energy and capacity at negotiated prices which are above market, based on current energy price forecasts. While the PPAs with the buyers of the formerly owned fossil and hydro assets, which were entered into as an integral part of the sales, are above market, they are designed to help Niagara Mohawk meet rate reduction and price cap commitments as well as expected demand as the provider of last resort. The PPAs converted to either swap agreements or swaptions (swap agreement with a call option). These swaps act as hedges against a substantial rise in power costs. Niagara Mohawk also signed PPAs with Constellation to purchase energy at negotiated competitive prices for ten years and revenue sharing agreements. See Item 8. Financial Statements and Supplementary Data, Note 3. Rate and Regulatory Issues and Contingencies, Note 8. Commitments and Contingencies, and Note 9. Fair Value of Financial and Derivative Financial Instruments, for a further discussion of the terms of these agreements.
Under the Power Choice agreement, the net losses resulting from the sale of the fossil and hydro generation asset portfolio were deferred for future recovery. Niagara Mohawk was not allowed to earn a return on the deferred loss during the Power Choice period (September 1, 1998 through January 31, 2002). In addition, the PSC has allowed Niagara Mohawk to offset the proceeds from the sale of the fossil and hydro generation assets by the net present value of the amount which the actual amount incurred on the hydro PPAs exceeded the forecasted amount reflected in Power Choice. On January 31, 2002, Niagara Mohawk began recovery of the loss on the fossil and hydro generation assets of approximately $122.5 million, which is included in Niagara Mohawk’s Consolidated Balance Sheets as “Merger rate plan stranded costs.”
Pursuant to the PSC Order approving the sale of the nuclear assets, dated October 24, 2001, Niagara Mohawk was required to write-off $123 million of nuclear investment. The PSC Order provides for the deferral and future recovery of the remaining nuclear stranded costs. Niagara Mohawk began to amortize the regulatory asset related to the loss on the sale of the nuclear assets immediately subsequent to such sale. As of December 31, 2001, Niagara Mohawk had a regulatory asset of $1,074.6 million for the net loss on the sale of its nuclear generation assets. Under the Merger Rate Plan, Niagara Mohawk agreed to forgo collection of an estimated $850 million in nuclear-related costs that otherwise would have been collected in rates. The nuclear regulatory asset that remained after such a write-off is included in Niagara Mohawk’s balance sheet as “Merger rate plan stranded costs.” The amount of the regulatory asset related to the sale of the nuclear assets is subject to change as a result of post closing adjustments on the sales, transaction costs, subsequent costs associated with contract clauses, the amount of severance and other costs, and PSC review of the amounts deferred. Remaining stranded costs related to the sale of all of the generation assets and the MRA regulatory asset will be amortized over ten years based upon a pattern established in the Merger Rate Plan. For a further discussion of the loss incurred on these sales, see Item 8. Financial Statements and Supplementary Data, Note 3. Rate and Regulatory Issues and Contingencies.
Niagara Mohawk has recorded a non-cash incentive as provided for in Power Choice of $18.6 million based on the asset sales of which $9.0 million is reflected in income in 1999, $2.8 million is reflected in income in 2000 and $6.8 million is reflected in income in 2001 in the “Other income (deductions)” line item of the Consolidated Income Statements. The incentive earned reflects PSC Staff recommended adjustments based on their review to date and is included in the other regulatory assets on the Consolidated Balance Sheets. The Merger Rate Plan did not establish a recovery period for the incentives.
The MRA Agreement. As a result of various federal and state requirements, Niagara Mohawk was required to enter into contracts to purchase electricity from IPPs in quantities in excess of its own demand and at prices in excess of those available to it. In mid-1996, Niagara Mohawk began comprehensive negotiations to terminate, amend or restate a substantial portion of above-market PPAs in an effort to mitigate the escalating cost of these PPAs as well as to prepare Niagara Mohawk for a more competitive environment. These negotiations led to the MRA and the Power Choice agreement.
The MRA was consummated on June 30, 1998 with 14 IPPs. The MRA allowed Niagara Mohawk to terminate, restate or amend 27 PPAs which represented approximately three-quarters of its over-market purchased power obligations. Niagara Mohawk terminated 18 PPAs for 1,092 MW of electric generating capacity, restated 8 PPAs representing 535 MW of capacity and amended 1 PPA representing 42 MW of capacity. Niagara Mohawk paid the IPP Parties an aggregate of $3.934 billion in cash, of which $3.212 billion was obtained through a public market offering of senior unsecured debt, $303.7 million from the public sale of 22.4 million shares of common stock, and the remainder from cash on hand. In addition, Niagara Mohawk issued 20.5 million shares of common stock to the IPP Parties.
Power Choice provided that the MRA and the contracts executed as part of the MRA were prudent and accordingly, PSC approval of Power Choice allowed Niagara Mohawk to record a regulatory asset for the costs of the MRA, which is being amortized over a period generally not to exceed ten years. Niagara Mohawk’s rates under Power Choice were designed to permit recovery of the MRA regulatory asset. The Power Choice agreement had the effect of substantially depressing earnings during its term and substantially improving operating cash flow. The closing of the merger and the implementation of the Merger Rate Plan will impact the future results of Niagara Mohawk. See “Merger Rate Plan” for a further discussion of how the closing of the merger with National Grid will impact the future results of Niagara Mohawk.
The MRA had the effect of reducing Niagara Mohawk’s IPP payments by more than $500 million annually in 1998 and 1999 as compared to leaving the pre-existing contracts in place, net of purchases of power at market price. These savings have been partially reduced in 2000 through June 2002 as a result of the increase in commodity prices. The resulting improvement in cash flow and the proceeds from the sale of the generation assets allowed Niagara Mohawk to repay debt and repurchase Holdings’ common stock.
Under the terms of the MRA, Niagara Mohawk has no continuing obligation to purchase energy from the terminated IPP Parties. The restated contracts with eight PPAs reflect economic terms and conditions that are more favorable to Niagara Mohawk than the previous PPAs. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk, and Item 8. Financial Statements and Supplementary Data - Note 8. Commitments and Contingencies and Note 9. Fair Value of Financial and Derivative Financial Instruments, for a further discussion regarding the remaining payments to the IPP Parties for the purchase of electric power and the payments made under the swap agreements.
Niagara Mohawk has pursued other opportunities to reduce its payments to IPPs that were not party to the MRA. Under Power Choice, Niagara Mohawk is permitted to defer and amortize the cost of any additional IPP contract buyouts. In 1999 through June 2002, 13 IPP contracts for approximately 161 MW were terminated for a total consideration (cash and/or notes) of $242.1 million. Deferred costs associated with IPP buyouts must generally be amortized over five years, unless PSC approval is obtained for a different amortization period. Niagara Mohawk retains the annual net savings from the buyouts during the remaining term of Power Choice to offset the amortization expense.
FERC Order 888. In April 1996, FERC issued Order 888, which promotes competition by requiring that public utilities owning, operating, or controlling interstate transmission facilities file tariffs which offer others the same transmission services they provide for themselves, under comparable terms and conditions. FERC Order 888 required state power pools to file reformed power pooling agreements that establish open, non-discriminatory membership provisions and modify any provisions that are unduly discriminatory or preferential. In addition, the FERC Order also provides for the recovery of prudent and verifiable stranded costs where the wholesale customer was able to obtain alternative power supplies as a result of Order 888’s open access mandate.
As a result of Order 888, there have been several developments during the past few years as follows:
Open Access
The New York Power Pool was restructured as the NYISO. The NYISO commenced formal operations on December 1, 1999. A discussion of the financial and accounting impacts as a result of the transition to the NYISO is included in the results of operations section.
Stranded Cost Recovery in the Case of Municipalization
In Order 888, the FERC stated that it would provide for the recovery of prudent and verifiable wholesale stranded costs where the wholesale customer was able to obtain alternative power supplies as a result of Order 888’s open access mandate. Order 888 left to the states the issue of retail stranded cost recovery. Where newly created municipal electric utilities required transmission service from the displaced utility, the FERC stated that it would entertain requests for stranded cost recovery to the extent that such municipalization is made possible by open access. The FERC also reserved the right to consider stranded costs on a case-by-case basis if it appeared that open access was being used to circumvent stranded cost review by any regulatory agency.
In November 1997, FERC issued Order 888-B. This Order clarified that the FERC recognizes the existence of concurrent state jurisdiction over stranded costs arising from municipalization. The FERC acknowledged in Order 888-B that the states may be first to address the issue of retail-turned-wholesale stranded costs, and stated that it will give the states substantial deference where they have done so.
In approving Power Choice, the PSC authorized changes to Niagara Mohawk’s Retail Tariff providing for the recovery of stranded costs in the case of municipalization regardless of whether the new municipal utility requires transmission service from Niagara Mohawk. The calculation of stranded costs for customers leaving Niagara Mohawk’s system to be supplied by a municipal or other utility or IPP is governed by Rule 52 of Niagara Mohawk’s Retail Tariff, which became effective on April 6, 1998. A number of communities served by Niagara Mohawk are considering municipalization and have requested an estimate of their stranded cost obligation.
In the Merger Rate Plan and long-term rate settlement, the PSC approved certain modifications to Rule 52. In brief, these modifications are: (1) Rule 52 will not apply to a customer’s premises which is disconnected from the Niagara Mohawk system and is supplied by generation installed after the effective date of the Merger Rate Plan when the generator is used exclusively to serve the customer; and (2) under specified circumstances when the customer disconnects from the Niagara Mohawk system and is connected to generation located on or immediately adjacent to the customer’s premises. The approved settlement provides that it does not preclude the parties from advocating that the Commission modify or eliminate Rule 52 or the Commission from adopting different policies on its own.
Lakewood and Alliance for Municipal Power
In August 1997, Niagara Mohawk provided the Village of Lakewood (“Lakewood”) with an estimate of its stranded cost obligations under both Rule 52 of Niagara Mohawk’s retail tariff and FERC Order No. 888. In June 1998, Lakewood filed a petition with FERC seeking a determination that it would not be responsible for any of Niagara Mohawk’s stranded costs if it created a new municipal electric system.
On December 11, 1998, the FERC issued an order granting Niagara Mohawk’s request for clarification that Order No. 888 does not preempt the exit fee provision of the Retail Tariff and directing that Lakewood’s case before the FERC be held in abeyance pending the resolution by the PSC of Lakewood’s stranded cost obligation under the exit fee provisions of Niagara Mohawk’s Retail Tariff.
During 1999, the PSC established a formal proceeding in this matter. Niagara Mohawk’s exit fee estimate was $18 million. Lakewood’s exit fee estimate was approximately $5 million. The parties to the case subsequently entered into a number of stipulations that subjects any exit fee established by the PSC to a true-up based on the resolution of certain issues presented in other proceedings or forums. These include stipulations which call for ultimate determinations outside this case of the amortization period for regulatory assets, and return on Niagara Mohawk’s regulatory assets for nuclear stranded costs, the MRA and loss on the sale of the fossil and hydro generation assets.
On September 11, 2000, the PSC issued an order setting Lakewood’s exit fee at approximately $14.5 million, subject to certain adjustments. In that order, the PSC also directed that further proceedings be conducted to determine whether certain changes to Rule 52 should be implemented at the expiration of the five year term of Power Choice. Lakewood has requested rehearing of the PSC’s September 11, 2000 order, and this rehearing request is still pending. On February 14, 2001, the Attorney General of the State of New York filed papers with the PSC requesting that the amount of the fee be reduced to approximately $2.8 million to reflect deletion of stranded costs claimed to be unrelated to local service.
In October 2001, Alliance for Municipal Power (AMP) filed a petition for a declaratory ruling to require Niagara Mohawk to provide exit fee calculations. In November 2001, AMP also filed comments in opposition to the merger Joint Proposal seeking an exit fee calculation using merger rate plan numbers. At AMP's request, Niagara Mohawk has provided an aggregate exit fee estimate of approximately $104 million, assuming the 21 AMP communities were to exit this summer and assuming a transmission revenue credit. Niagara Mohawk is unable to predict the outcome of this proceeding at this time. While the municipalization of Lakewood would not have a material impact on Niagara Mohawk’s results of operations and financial position, the outcome of this matter will likely define the methodology to determine exit fees.
Griffiss Local Development Corporation
In a petition for expedited declaratory ruling filed with the FERC on June 24, 1999, the Griffiss Local Development Corporation (“GLDC”) and the Oneida County Industrial Development Agency (“Oneida IDA”) sought an order declaring that purchases of electricity from Niagara Mohawk by the Air Force Base Conversion Agency and/or by GLDC itself for use at the former Griffiss Air Force Base (“the Base”) were wholesale sales subject to the jurisdiction of the FERC rather than retail sales subject to the jurisdiction of the PSC. In addition, GLDC and Oneida IDA also sought an order from the FERC asserting exclusive jurisdiction over any stranded cost obligation resulting from the change from retail to wholesale rates and a determination that Niagara Mohawk was not entitled to any stranded costs as a result of that change. Niagara Mohawk intervened in this proceeding and opposed all relief requested by GLDC. The FERC has not yet acted on this Petition.
On July 19, 1999, GLDC and Oneida IDA filed an application with the PSC for a certificate of public convenience and necessity allowing them to furnish electric service to retail customers located on the Base, subject to light-handed regulation by the PSC. On October 1, 1999, Niagara Mohawk intervened in this PSC proceeding and stated that it was opposed to the issuance of the approvals requested by GLDC and Oneida IDA unless they agreed to pay an exit fee, which Niagara Mohawk estimated at $12 million. GLDC filed responsive testimony and calculated an exit fee of $180,000, and the PSC outlined an exit fee of approximately $7 million in its testimony. A substantial portion of the difference between the Niagara Mohawk estimate and the PSC estimate related to future anticipated load to be served by GLDC. GLDC and Oneida IDA refused to agree to these terms, and the PSC set that case for hearing before one of its administrative law judges.
Shortly before that hearing was scheduled to commence, Niagara Mohawk entered into a settlement agreement with GLDC and Oneida IDA. That settlement agreement ultimately proved unworkable, due to the unavailability of certain economic benefits from the state of New York. The parties met thereafter and have recently executed a new settlement agreement which would resolve all issues in this case. This settlement is conditioned on approval by the PSC and acceptance by the FERC without material modification or change, which has not yet been obtained. Niagara Mohawk cannot predict the outcome of any proceedings before the PSC or the FERC relating to this agreement.
Niagara Mohawk has also prepared exit fee stranded cost estimates for several other municipalities and customers. Niagara Mohawk is unable to predict whether these other municipalities or customers will pursue a withdrawal from Niagara Mohawk’s system or the amount of stranded costs it may receive as a result of any withdrawals.
FERC Order 2000. In December 1999, the FERC issued Order 2000, which requires all public utilities that own, operate or control interstate electric transmission to file either a proposal for a Regional Transmission Organization (“RTO”) or an explanation of their reasons for not making such a proposal. Utilities, including Niagara Mohawk, who are part of a FERC approved transmission entity (Niagara Mohawk is a member of the NYISO), were required to make their filings by January 15, 2001.
On January 16, 2001, following a collaborative process with the other New York transmission owning utilities, with the staff of the NYISO, and other New York wholesale market participants, Niagara Mohawk, the other New York transmission owning utilities and the NYISO made a joint filing with the FERC describing how the NYISO is generally compliant with many of the Order 2000 requirements, and specifying the steps that will be taken to achieve full compliance with the remaining requirements of that Order. A number of generators, marketers and industrial customers subsequently intervened in this proceeding requesting various forms of relief ranging from a FERC order requiring the NYISO to merge with the New England Independent System Operator (“ISO New England”) and Pennsylvania Jersey Maryland independent system operator (“PJM”) to modification or abolition of various provisions of the NYISO’s Open Access Transmission Tariff.
Because Order No. 2000 requires that RTOs have full filing rights under Section 205 of the Federal Power Act (“FPA”) with respect to their tariffs, Niagara Mohawk and the other New York Transmission Owners sought rehearing of that decision on the ground that participation in an RTO would strip those utilities of their statutory rights under the FPA. The FERC rejected this contention in an Order dated February 25, 2001, and Niagara Mohawk and the other New York Transmission Owners appealed those rulings to the United States Court of Appeals for the District of Columbia Circuit. On December 11, 2001, the United States Court of Appeals for the District of Columbia Circuit dismissed the New York Transmission Owners’ appeal of Order 2000 on the ground that those utilities were not aggrieved by anything in that order because the FERC had held in that order that participation in RTOs was “voluntary” and, hence, lacked standing to seek judicial review of that order. The court noted that the FERC had given each utility the choice of filing an RTO proposal or of making a filing explaining its reasons for not doing so, and that no party had demonstrated that any utility refusing to join an RTO would be punished for its failure to do so.
On July 12, 2001, FERC ruled that the NYISO and ISO New England did not satisfy the RTO requirements of Order 2000 for a variety of reasons, including lack of an adequate geographic scope. In another order issued on July 12, 2001, the FERC provisionally certified PJM as an RTO, on the condition that it merge with the NYISO and ISO New England to achieve adequate geographic scope. To facilitate that merger, the FERC ordered the commencement of a mediation process to develop a plan that would achieve a single RTO for the Northeast region of the country utilizing the best practices from each of the existing Northeast ISOs.
This mediation process commenced in August 2001 and involved all entities involved in the three Northeast regions, as well as Canadian entities. The mediation process focused on developing a “best practices” approach and associated business plan to migrate the three ISOs into one Northeast RTO. The resulting business plan was submitted by the FERC ALJ to the Commission on September 17, 2001. Additionally, the FERC issued a rulemaking to address Standard Market Design regarding the buying and selling of power. The FERC requested in a December 2001 order that all industry segments try to agree on a single standards organization that would establish national standards business practices for the wholesale electric industry. FERC has also solicited comments on a wide range of issues, including: transmission pricing, pricing for electric energy and capacity, transmission planning, generation dispatch, RTO governance, market monitoring, long term generation adequacy (including installed capacity or “ICAP”), and resolution of “seams” – or conflicting practices or charges that inhibit inter-regional energy transactions. All of these either directly or indirectly affect the Niagara Mohawk’s business. It is anticipated that FERC will launch a formal notice of proposed rulemaking proceeding this summer.
In January 2002, PJM Interconnection, together with the Midwest Independent Transmission System Operators, Inc. and the Southwest Power Pool, Inc., announced the formation of a Single Market Design Forum to identify the needs of market participants and promote efficiency in electricity markets. On January 29, 2002, the NYISO and the ISO New England executed an agreement to develop a common electricity marketplace for their adjacent regions based on common market design and to evaluate the possibility of creating a Northeast RTO, even though the geographic scope of such an RTO is still an open question.
Niagara Mohawk cannot predict what actions, if any, the FERC will take with respect to the business plan submitted to it on September 17, 2001, nor can Niagara Mohawk predict whether or when an RTO or other similar entity may be established that would include Niagara Mohawk’s service territory or the financial impacts, if any, that may result from the ultimate establishment of any such RTO or other similar entity.
FERC Order on Niagara Mohawk’s Transmission Rates with Sithe. Sithe/Independence Power Partners, LP (“Sithe”) had filed two separate complaints against Niagara Mohawk in 1995 and 1999 challenging the transmission rates charged by Niagara Mohawk. In its most recent complaint, Sithe also challenged Niagara Mohawk’s revenue requirements and loss methodology and also sought a refund of approximately $65 million, for certain interconnection facilities for which Sithe agreed to pay in 1992.
In June 2001, Niagara Mohawk and Sithe filed a settlement with FERC. On March 27, 2002, FERC approved the proposed settlement and terminated these two FERC dockets.
Other Regulatory Restructuring Proceedings. The PSC continues to assess other functions in the regulated electric and gas business to lower consumer rates and increase customer choice. The PSC is considering opening competition to energy services and is re-examining the rates for the metering and billing functions already opened to competition. On January 13, 1999, the PSC adopted a set of Uniform Business Practices for Retail Access designed to streamline and make more uniform the manner in which the local utilities interact with natural gas and electricity marketers, energy services companies and customers who purchase energy in New York State’s evolving competitive market.
Niagara Mohawk’s results of operations has not been negatively impacted by the implementation of the competitive metering and billing functions due to the limited scope of the PSC’s order on such functions and the use of long run avoided costs to establish back out credits against utility prices. The exposure could grow, however, as the rates for metering and billing are re-examined, or other services are required to be opened to competition using embedded cost as a back out credit. The PSC has also instituted a separate track of its examination of provider of last resort issues to address the complete unbundling of electric and gas rates into components to facilitate expanded competition. Niagara Mohawk will continue to participate with the PSC and other parties as New York State moves forward with a competitive utility industry, but it cannot predict the outcome of the results and the impact on its Power Choice agreement or the Merger Rate Plan.
OTHER FEDERAL AND STATE REGULATORY INITIATIVES
Gas Multi-Year Rate and Restructuring Agreement. Niagara Mohawk filed a three-year gas rate and restructuring proposal on March 11, 1999, in anticipation of the expiration of its 1996 three-year gas rate settlement agreement, which expired on November 1, 1999. On July 19, 2000, the PSC approved the agreement that had been negotiated between Niagara Mohawk and the PSC Staff and became effective on August 1, 2000. The agreement includes the following:
- A freeze on Niagara Mohawk’s delivery rates for a three-year, ten-month period, beginning November 1, 1999. This would align the expiration of the gas rate agreement with the expiration of the Power Choice agreement.
- Commodity costs continue to be passed through to customers.
- Niagara Mohawk will recover all potential stranded pipeline capacity costs that result from customer switching through the use of the contingency reserve account, which was established by the previous gas settlement agreement.
- Niagara Mohawk would give each customer who migrates to another gas supplier a merchant function backout credit, which reflects services Niagara Mohawk is no longer providing to that customer. Any stranded transition costs related to migration will be recoverable through the contingency reserve account.
- A rate of return on common equity (“ROE”) cap over the settlement period of 10 percent with a 50/50 sharing of excess earnings above the cap if Niagara Mohawk does not achieve any of the incentive linked with customer awareness and understanding of their ability to choose an alternate commodity supplier or with the incentive related to customer migration levels. Niagara Mohawk will be able to increase its earned ROE (up to 12 percent) without any sharing by achieving the incentive linked to customer awareness and understanding of supplier choice and the incentive linked to migration levels.
The Merger Rate Plan extends this settlement for an additional 16 months to December 2004.
Change of Fiscal Year. Niagara Mohawk changed its fiscal year from a calendar year ending December 31 to a fiscal year ending March 31. Niagara Mohawk made this change in order to align its fiscal year with that of its new parent company, National Grid. Niagara Mohawk’s first new full fiscal year began on April 1, 2002 and will end on March 31, 2003.
Critical Accounting Policies. There are certain critical accounting policies that are based on assumptions and conditions that if changed could have a material effect on the financial condition, results of operations and liquidity of Niagara Mohawk. The following accounting policies are particularly important to the financial condition and results of operations of Niagara Mohawk: regulatory accounting (including the collection of fuel expense through the electric fuel adjustment clause and the gas cost collection mechanism), goodwill accounting and derivative accounting.
The Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on Issue No. 97-4, “Deregulation of the Pricing of Electricity - - Issues Related to the Application of SFAS No. 71” and SFAS No. 101,” “Regulated Enterprises - Accounting for the Discontinuance of Application of FASB Statement No. 71” in 1997. EITF 97-4 does not require a company to earn a return on regulatory assets that arise from a deregulating transition plan in assessing the applicability of SFAS No. 71. Niagara Mohawk believes that the regulated cash flows to be derived from prices it will charge for electric service in the future, including the CTC and assuming no unforeseen reduction in demand or bypass of the CTC or exit fees, will be sufficient to recover the MRA regulatory asset over its planned amortization period and to provide recovery of and a return on the remainder of its assets, as appropriate. Under the Merger Rate Plan, Niagara Mohawk will earn a return on all of its regulatory assets. In the event Niagara Mohawk determines, as a result of lower than expected revenues and/or higher than expected costs, that its net regulatory assets are not probable of recovery, it can no longer apply the principles of SFAS No. 71 and would be required to record an after-tax, non-cash charge against income for any remaining unamortized regulatory assets and liabilities. If Niagara Mohawk could no longer apply SFAS No. 71, the resulting charge would be material to Niagara Mohawk’s reported financial condition and results of operations and adversely affect Niagara Mohawk’s ability to pay dividends.
Under the Merger Rate Plan, Niagara Mohawk’s remaining electric business (electric transmission and distribution business) continues to be rate-regulated on a cost-of-service basis and, accordingly, Niagara Mohawk continues to apply SFAS No. 71 to these businesses. Also, Niagara Mohawk’s IPP contracts, including those restructured under the MRA, as well as the PPAs entered into in connection with the generation divestiture, continue to be the obligations of the regulated business.
The acquisition of Niagara Mohawk is being accounted for by the purchase method, the application of which, including the recognition of goodwill, is being recognized on the books of Niagara Mohawk, the most significant subsidiary of Holdings. The merger transaction resulted in approximately $1.231 billion of goodwill, which will be subject to SFAS No. 142, “Goodwill and Other Intangible Assets.” This amount was determined pursuant to a study conducted by an independent third party. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic goodwill impairment tests. Niagara Mohawk performed a comprehensive impairment test at March 31, 2002. As a result of such analysis, it was determined there was no impairment of goodwill at that date.
The FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 137 changed the implementation date for this standard to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No.138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133” which, among other changes, modified the type and number of transactions to which the new standard would need to be applied.
The basic requirements of SFAS No. 133 are that companies identify all derivative instruments in use, record all derivatives on the balance sheet as assets or liabilities measured at fair value, and adjust the fair value at each financial reporting period. Depending on the use of the derivative and its qualification as a hedge, the changes in fair value will either be recorded directly in earnings or deferred and matched with the settlement of the transaction being hedged. Niagara Mohawk’s derivatives are listed on the Consolidated Balance Sheets as “Assets from price risk management activities” and “Liabilities from price risk management activities.” Amounts shown at December 31, 2000 and Niagara Mohawk’s amount for “Deferred gain on futures contracts” and “Deferred gain on swap hedges” represent the accounting treatment under the previous standard, SFAS No. 80, “Accounting for Futures Contracts.”
Niagara Mohawk adopted this standard beginning January 1, 2001. Upon implementation, Niagara Mohawk designated several financial instruments as derivatives and qualified certain of these instruments as hedges. Those derivative instruments that did not qualify for hedge accounting were the result of regulatory rulings and therefore, the earnings impact of the adoption of SFAS No. 133 was offset by regulatory assets or liabilities as directed by SFAS No. 71. The result was no impact on earnings for the adoption of SFAS No. 133 by Niagara Mohawk.
For further discussion of Critical Accounting Policies see Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Item 8. Financial Statements and Supplementary Data, Note 1. Summary of Significant Accounting Policies, Note 3. Rate and Regulatory Issues and Contingencies and Note 9. Fair Value of Financial and Derivative Financial Instruments.
RESULTS OF OPERATIONS
The following discussion presents the material changes in results of operations. Results of operations from 1999 through January 30, 2002 reflect the implementation of Power Choice and the sale of the generation assets at various times through that period. As a result of the closing of the MRA and the implementation of Power Choice effective September 1, 1998, reported earnings under Power Choice were substantially depressed as a result of the regulatory treatment of the MRA regulatory asset. The closing of the merger with National Grid occurred on January 31, 2002. The related push down and allocation of the purchase price and implementation of the Merger Rate Plan has affected the reported results of Niagara Mohawk subsequent to the merger or the “successor” period. Information relating to all “predecessor” periods prior to the acquisition is presented using Niagara Mohawk’s historical basis of accounting. See “Merger Rate Plan” for further discussion of how the closing of the merger with National Grid will impact the future results on Niagara Mohawk. This discussion should also be read in conjunction with other financial and statistical information appearing elsewhere in this report.
To assist in the comparability of Niagara Mohawk’s financial results and discussions, results of operations for the three months ended March 31, 2002 include results for the 30 day period of the predecessor and the 60 day period of the successor and are designated as “combined.” Management has based its discussion and analysis of results of operations for the three month period ending March 31, 2002 as compared to the three month period ending March 31, 2001 on the combined results of operations for the three month period ending March 31, 2002.
Net Income for the three months ended March 31, 2002 was $9.7 million as compared to $34.0 million for the same period in 2001.
Earnings for the three months ended March 31, 2002 were negatively impacted by the following items:
• Incremental storm expense of $13.9 million.
• Higher employee welfare expenses primarily due to separation cost of $7.1 million and higher pension and other postretirement benefits expense and accruals of $14.3 million.
• Incremental merger related costs of $11.4 million.
• The recording of a non-cash incentive of $6.8 million in the three months ended March 31, 2001 due to the gain on the sale of the Roseton Steam Station. No incentive was recorded in the three months ended March 31, 2002.
• In the three months ended March 31, 2001, Niagara Mohawk received $22.2 million in GRT Power for Jobs credits due to a prior year true-up. GRT credits of $1.2 million were received in the same period in 2002 due to a prior year true-up.
Earnings for the three months ended March 31, 2002 were positively impacted by the following items:
• Lower interest expense of approximately $13.4 million primarily due to the repayment of debt during 2001.
• An increase in interest income and carrying charges of $9.0 million primarily due to interest income received on the note receivable from Constellation related to the nuclear sale.
• In the three months ended March 31, 2001, Niagara Mohawk was exposed to higher natural gas prices in its purchased power portfolio of $23.3 million, principally because restructured contracts with IPPs began indexing to natural gas prices in July 2000. Niagara Mohawk took steps to hedge against further volatility in natural gas prices, largely by purchasing New York Mercantile Exchange (“NYMEX”) gas future contracts through August 2001. On September 1, 2001, the rate plan changes under the Power Choice agreement allowed for the pass-through of most commodity-related costs to customers. This pass-through of commodity costs to customers continues under the Merger Rate Plan.
• A decrease in bad debt expense of $5.7 million.
Niagara Mohawk’s Net Income was $19.4 million in 2001 as compared to a Net Loss of $27.6 million in 2000 and a Net Loss of $9.7 million in 1999.
Earnings for 2001 were positively impacted by the following items:
• Niagara Mohawk recorded previously deferred investment tax credits related to the sale of the nuclear assets of $79.7 million.
• Electric margin was higher in 2001 as compared to 2000 by $62.8 million, in part due to the ability of Niagara Mohawk to recover its commodity costs through the commodity adjustment clause mechanism beginning on September 1, 2001.
• Lower interest expense of approximately $43.5 million due to the repayment of debt during 2000 and 2001.
• Lower depreciation expense and real estate taxes of $24.5 million primarily as a result of the nuclear sale.
• Lower nuclear operating and maintenance expense (net of deferrals and amortizations) of $21.2 million as a result of the sale of the nuclear assets.
• The increase in GRT credits recorded by Niagara Mohawk of $32.6 million due to an increase in the customers in Niagara Mohawk’s service territory that participate in New York State’s Power for Jobs program.
• Lower non-nuclear operating and maintenance expense of $15.7 million as a result of the sale of the non-nuclear assets.
Earnings for 2001 were negatively impacted by the following items:
• Niagara Mohawk recorded a non-cash pre-tax write-off of $123 million to reflect the disallowed nuclear investment costs as part of a regulatory settlement agreement related to the sale of the nuclear assets.
• The insurance proceeds and disaster relief associated with the 1998 ice storm restoration effort was $5.6 million in 2001 as compared to $29.9 million in 2000.
• The impact of higher natural gas prices on indexed IPP contracts in the first eight months of 2001 as compared to the first eight months of 2000, which increased purchased power costs by $33.0 million. On September 1, 2001, the commodity adjustment clause was implemented that allows Niagara Mohawk to pass-through commodity costs to customers.
• Amortization of the nuclear regulatory asset of $29.6 million in accordance with the PSC Order approving the November 2001 sale of the nuclear assets.
• Higher pension expense of $18.7 million and compensation expense of $12.7 million.
• An increase in bad debt expense of $7.7 million which reflects the impact of the higher natural gas prices on customers early in 2001.
• A reduction in electric revenues by $7.7 million as a result of the implementation of Niagara Mohawk’s third phase of rate reductions in September 2000 under Power Choice.
The loss for 2000 included a loss in other income (deductions) related to the early retirement of debt of $1.4 million, compared to $36.6 million in 1999. Earnings for 2000 were increased by $33.8 million due to lower interest costs as a result of Niagara Mohawk’s debt retirement program, by $19.4 million related to the insurance proceeds and disaster relief recovery associated with the January 1998 ice storm restoration effort, and by $9.2 million due to lower costs related to the 1999 implementation of a new customer service system.
The increases in 2000, however, were offset by a number of factors. Earnings were reduced by $48.5 million as a result of Niagara Mohawk’s exposure to higher natural gas prices in its purchased power and generation portfolio, by $19.4 million due to lower investment tax credits and incentives related to the sale of the fossil and hydroelectric generating stations, and by $12.8 million as a consequence of the second and third phases of electric price reductions provided in the Power Choice agreement, by $11.6 million for increased costs associated with the operation of the NYISO, and by $10.2 million related to an adjustment based on the regulatory review of the deferred costs related to the sale of the fossil and hydroelectric generating stations.
The following discussion and analysis highlights items that significantly affected Niagara Mohawk’s operations during the three-year period ended December 31, 2001 and the three months ended March 31, 2002 and 2001. This discussion and analysis is not likely to be indicative of future operations or earnings, particularly in view of the sale of Niagara Mohawk’s generation assets, the merger, and the implementation of the Merger Rate Plan. Also, as a National Grid company, Niagara Mohawk will be reporting results in the future on a fiscal year ending March 31, which may affect comparability to prior results. See “Merger Rate Plan” for a further discussion of how the closing of the merger with National Grid will impact the future results of Niagara Mohawk. It should also be read in conjunction with Item 8. Financial Statements and Supplementary Data, and other financial and statistical information appearing elsewhere in this report.
Customer Service System. In mid-February 1999, Niagara Mohawk implemented a new Customer Service System (“CSS”). The CSS replaced existing order, billing, collection and other infra-structural systems and is designed to provide real-time information as well as a more flexible and streamlined billing system. The CSS provided the retail access and unbundled bill functionality required under Power Choice and also addressed Year 2000 compliance. These capabilities could not be developed in the previous systems.
Niagara Mohawk, like other companies that have implemented similar CSS projects, had experienced a transition period, characterized by significantly higher customer call volumes and complaints, billing and data accumulation issues, and other problems that impacted productivity and costs. Billing and data accumulation issues included bill format errors, billing delays as edit and validation checks rejected bills, instances where bills could not be generated by CSS, and inappropriate late payment charges. The transition was also complicated by changes in the information and choices provided to customers pursuant to Power Choice. Niagara Mohawk took steps prior to and during the transition period to prioritize and respond to problems.
The CSS transition period presented financial exposures as outstanding accounts receivables increased. Niagara Mohawk’s bad debt expense for 1999 was $65.9 million as compared to $36.7 million in 1998, with the increase in 1999 primarily attributable to the added exposure to collection risk. Niagara Mohawk took aggressive action to reduce its outstanding accounts receivable balance, so that the reserve for bad debts could be returned to a level appropriate in the normal course of business. These actions included increasing the outbound telephone calls to high-risk customers and increasing the number of field collectors. However, the actions available to Niagara Mohawk are more limited during the heating season (beginning November 1 through April 15), as a result of regulatory restrictions on disconnection of heat-related service during cold weather. Bad debt expense for 2000 was reduced to $56.6 million, but also reflects the significant increase in gas commodity prices in the second half of 2000, which was passed through to gas customers. Bad debt expense increased to $64.3 million in 2001, which also reflected the continued increase in gas commodity prices in early 2001. Bad debt expense was $17.1 million for the three months ended March 31, 2002 as compared to $22.8 million for the three months ended March 31, 2001.
The PSC had evaluated the development and implementation costs of the CSS project, as well as Niagara Mohawk’s response to the transition problems incurred during implementation and raised certain concerns. Niagara Mohawk believes it has addressed the concerns raised by the PSC to resolve the issues that generated much of the call volumes and customer complaints.
REVENUES AND SALES
Electric:
Electric revenues for the three months ended March 31, 2002 and March 31, 2001 were $822.7 million and $823.6 million, respectively, and for the year ended 2001 were $3,393.2 million, and were $3,207.4 million and $3,247.8 million in the years 2000 and 1999, respectively.
As summarized in the table below, electric revenues decreased $0.9 million or 0.1 percent in the three months ended March 31, 2002 as compared to the same period in the 2001 and increased $185.8 million or 5.8 percent in the calendar year 2001 as compared to the same period in 2000.
Electric revenues decreased in the three months ended March 31, 2002 as compared to the same period in 2001 primarily as a result of lower sales to ultimate customers due to the warmer weather. In addition, transmission revenues decreased $8.6 million primarily due to the introduction of the transmission revenue adjustment mechanism on September 1, 2002, which reduced transmission revenues by $7.1 million. These decreases were partially offset by an increase in distribution of energy of $19.2 million; higher electric rates since September 2001 of $21.3 million since the commodity cost reflected in rates was higher, partially offset by lower delivery rates; an increase in systems benefit charge revenue recoveries of $5.5 million and an increase in unbilled revenues of $5.8 million. In accordance with Power Choice and the Merger Rate Plan, Niagara Mohawk recognizes changes in accrued unbilled revenue in its results of operations. The systems benefits charge is offset in other operation and maintenance expense. The decrease in electric sales to ultimate consumers and the increase in distribution of energy reflects the growing number of customers that purchase electricity from other suppliers.
The increase in electric revenues in 2001 as compared to 2000 is primarily due to an increase in sales for resale of $118.0 million as a result of higher sales to the NYISO; higher overall Power Choice rates since September 2001 of $36.5 million since the commodity cost reflected in rates was higher, partially offset by lower delivery rates; an increase in miscellaneous revenues of $26.9 million; an increase in transmission revenues of $11.3 million and an increase in the systems benefit charge revenue recoveries of $23.6 million.
Miscellaneous electric revenues increased as a result of the recording of $9.2 million of revenues to be received under the NYPA residential hydropower benefit mechanism due to an under collection from the prior year and due to the May 2000 New York State tax law changes (see Item 8. Financial Statements and Supplementary Data - Note 1. Summary of Significant Accounting Policies, “Basis of Presentation” for a further discussion of the May 2000 tax law changes), despite a decrease in unbilled revenues of $14.7 million. In accordance with Power Choice, Niagara Mohawk recognizes changes in accrued unbilled revenue in its results of operations. Transmission revenues increased as a result of increased revenues from transmission congestion contracts implemented as part of the NYISO. These transmission revenues were partially offset by the introduction of the transmission revenue adjustment mechanism (“TRAM”) on September 1, 2001, which reduced transmission revenues by $10.9 million. The TRAM will compare actual transmission revenues with the $87.4 million annual forecast base transmission revenue used to develop Power Choice electric delivery prices, with differences collected from or returned to customers. The systems benefits charge is offset in other operation and maintenance expense. The increased revenues from the sales for resale to the NYISO is offset in electricity purchased costs.
As summarized in the table below, electric revenues in calendar year 2000 decreased $40.4 million from the calendar year 1999 due to a decrease in retail revenues of $266.2 million or a decrease of 8.7 percent. This decrease was primarily due to a decrease in electric sales/deliveries to ultimate consumers as a result of the milder summer of 2000 compared to the warmer than normal weather of 1999 and also due to lower prices. This decrease was partially offset by an increase in sales for resale of $65.1 million, due primarily to increased sales to the NYISO, an increase in miscellaneous revenues, of $20.2 million (primarily unbilled revenues) and an increase in transmission revenues of $16.8 million. A portion of the decrease in retail revenues, and increase in unbilled revenues is attributable to the effect of changing from bi-monthly to monthly billing. Transmission revenues increased as a result of increased revenues from transmission congestion contracts implemented as part of the NYISO. The decrease in electric sales to ultimate consumers and the increase in distribution of energy of $123.8 million reflects the growing number of customers that purchase electricity from other suppliers. When customers choose an alternative supplier of energy, Niagara Mohawk continues to collect delivery charges and the CTC, which are reflected as “Distribution of Energy.” The GWh that are delivered to the customers who have chosen an alternative supplier are not included in Niagara Mohawk’s sales amounts. In circumstances where Niagara Mohawk sells energy to energy service companies for resale, those revenues are included in “Other Electric Systems.”
See Item 8. Financial Statements and Supplementary Data - Electric Statistics, for a summary of electric revenue and sales data for the three months ended March 31, 2002 and March 31, 2001 and the years 1999 through 2001.
| Increase (decrease) from prior period
|
| (In millions of dollars)
|
| Three Months
|
|
|
|
|
| Ended
|
|
|
|
|
| March 31,
|
| Years Ended
|
| (Combined)
|
| December 31,
|
Electric Revenues
| 2002
|
| 2001
|
| 2000
|
|
|
| RESTATED
|
|
|
Changes in volume and mix of
|
|
|
|
|
|
sales to ultimate consumers
| $ (45.0)
|
| $ 14.0
|
| $ (275.6)
|
Sales to other electric systems
| 0.9
|
| 118.0
|
| 65.1
|
Systems benefit charge recovery
| 5.5
|
| 23.6
|
| (1.0)
|
Unbilled revenues
| 5.8
|
| (14.7)
|
| 51.0
|
Transmission of energy
| (8.6)
|
| 11.3
|
| 16.8
|
Distribution of energy
| 19.2
|
| (2.9)
|
| 123.8
|
Electric Rates
| 21.3
|
| 36.5
|
| (20.5)
|
| $ (0.9)
|
| $ 185.8
|
| $ (40.4)
|
Electric kilowatt-hour sales were 9.4 billion and 9.3 billion for the three months ended March 31, 2002 and the same period in 2001, respectively, and 39.9 billion in the calendar year 2001, and 36.3 billion in the calendar year 2000 and 36.8 billion in the calendar year 1999.
Electric deliveries for the three months ended March 31, 2002 as compared to the same period in 2001 increased 0.1 billion KWh and increased 3.6 billion KWh or 10.0 percent in the calendar year 2001 as compared to the same period in 2000. The increase in the three months ended March 31, 2002 as compared to the same period in 2001 is primarily due to an increase in sales for resale of 0.7 billion KWh as a result of higher sales to the NYISO and an increase in distribution of energy of 0.2 billion KWh, partially offset by a decrease in sales to ultimate customers of 0.7 billion KWh primarily due to the milder weather.
The increase in calendar year 2001 is primarily due to an increase in sales for resale of 4.1 billion KWh as a result of higher sales to the NYISO, partially offset by a decrease in sales to ultimate customers of 0.3 billion KWh due to the milder weather in 2001 as compared to 2000.
Electric deliveries for calendar year 2000 decreased 0.5 billion KWh or 1.2 percent as compared to the same period in 1999. The decrease is primarily due to a decrease in sales to ultimate customers offset by higher distribution deliveries as compared to 1999. Sales to other electric systems were slightly higher in 2000.
Detail of the changes in electric revenues and KWh sales by customer group are highlighted in the following table:
| Three Months
|
|
|
|
|
|
|
| Ended
|
|
|
|
|
|
|
| March 31,
|
|
|
|
|
|
|
| 2002
|
|
|
|
|
|
|
| (Combined)
| % Increase (decrease)
|
|
|
|
|
| % of
| from prior quarter
| % Increase (decrease) from prior year
|
| Electric
| 2002
|
| 2001
|
| 2000
|
|
Class of Service
| Revenues
| Revenues
| KWh Sales
| Revenues
| KWh Sales
| Revenues
| KWh Sales
|
Residential
| 39.9
| 0.7
| (4.0)
| 1.3
| (0.1)
| (5.1)
| (3.8)
|
Commercial
| 30.0
| (5.5)
| (7.8)
| 2.7
| (1.5)
| (13.3)
| (15.1)
|
Industrial
| 10.8
| (19.9)
| (17.0)
| (1.1)
| (8.7)
| (6.5)
| (15.0)
|
Industrial - Special
| 1.7
| (13.4)
| (15.0)
| 4.1
| 8.6
| (3.6)
| (4.9)
|
Other
| 1.2
| 98.3
| (4.4)
| (21.6)
| (7.2)
| (20.9)
| (16.5)
|
Total to ultimate consumers
| 83.6
| (4.4)
| (9.1)
| 1.2
| (1.0)
| (8.7)
| (10.3)
|
NYISO and other
| 3.6
| 3.1
| 152.9
| 104.4
| 200.8
| 136.1
| 21.1
|
Distribution of energy
| 6.9
| 50.6
| 16.6
| (1.6)
| (2.6)
| 220.7
| 200.7
|
Transmission of energy
| 4.3
| (19.4)
| -
| 9.6
| -
| 16.7
| -
|
Miscellaneous
| 1.6
| 285.6
| -
| 131.7
| -
| -
| -
|
Total
| 100.0
| (0.1)
| 1.1
| 5.8
| 10.0
| (1.2)
| (1.2)
|
Gas:
Gas revenues decreased $126.5 million in the three months ended March 31, 2002 from the comparable period in 2001 due to lower gas prices being passed through to customers and milder weather in 2002. Gas revenues increased $63.0 million or 9.6 percent in the calendar year 2001 primarily as a result of higher gas prices being passed through to customers in early 2001, despite overall milder weather in 2001.
Gas revenues increased $78.9 million or 13.6 percent in calendar year 2000 primarily as a result of higher gas prices being passed through to customers and colder weather in 2000.
| Increase (decrease) from prior period
|
| (In millions of dollars)
|
| Three Months
|
|
|
|
|
| Ended
|
|
|
|
|
| March 31,
|
| Years Ended
|
| (Combined)
|
| December 31,
|
Gas Revenues
| 2002
|
| 2001
|
| 2000
|
Transportation of customer-owned gas
| $ 6.2
|
| $ (3.4)
|
| $ 4.3
|
Gas Adjustment Clause revenues
| (114.5)
|
| 65.5
|
| 84.8
|
Revenue sharing mechanisms
| -
|
| 6.9
|
| (8.2)
|
Spot market sales
| -
|
| (1.6)
|
| (2.7)
|
Changes in volume and mix of sales
|
|
|
|
|
|
to ultimate consumers
| (18.2)
|
| (4.4)
|
| 0.7
|
| $ (126.5)
|
| $ 63.0
|
| $ 78.9
|
Gas sales in the three months ended March 31, 2002, excluding transportation of customer-owned gas and spot market sales, were 27.9 million Dth, a 19.6 percent decrease from the same period in 2001. The decrease was primarily due to milder weather in the three months ended March 31, 2002 as compared to the same period in 2001.
Gas sales in the calendar year 2001, excluding transportation of customer-owned gas and spot market sales, were 64.1 million Dth, a 9.7 percent decrease from 2000. The decrease in gas sales is primarily attributable to milder weather in 2001 as compared to 2000. Gas delivered was also negatively impacted by a decrease in transportation volumes of 14.4 million Dth or 10.2 percent as a result of customers purchasing less gas from other gas providers.
Gas sales in the calendar year 2000, excluding transportation of customer-owned gas and spot market sales, were 71.0 million Dth, a 3.5 percent increase from 1999. The increase in gas sales is primarily attributable to colder weather in the fourth quarter of 2000. Gas delivered was also positively impacted by an increase in transportation volumes of 2.9 million Dth or 2.1 percent as a result of customers purchasing more gas from other gas providers.
Changes in gas revenues and Dth sales by customer group are detailed in the table below:
| Three Months
|
|
|
|
|
|
|
| Ended
|
|
|
|
|
|
|
| March 31,
|
|
|
|
|
|
|
| 2002
|
|
|
|
|
|
|
| (Combined)
| % Increase (decrease)
|
|
|
|
|
| % of
| from prior quarter
| % Increase (decrease) from prior year
|
| Gas
| 2002
|
| 2001
|
| 2000
|
|
Class of Service
| Revenues
| Revenues
| Sales
| Revenues
| Sales
| Revenues
| Sales
|
Residential
| 67.2
| (38.4)
| (21.5)
| 7.4
| (10.0)
| 17.4
| 5.2
|
Commercial
| 21.7
| (37.8)
| (14.2)
| 11.9
| (8.7)
| 17.8
| (1.9)
|
Industrial
| 0.3
| (56.3)
| 11.0
| 4.2
| (20.1)
| 29.8
| 8.8
|
Total to ultimate consumers
| 89.2
| (38.3)
| (19.6)
| 8.3
| (9.7)
| 17.5
| 3.5
|
Other gas systems
| -
| 383.3
| -
| (20.0)
| (7.7)
| 84.2
| 30.0
|
Transportation of customer-owned gas
| 9.7
| 38.6
| (1.6)
| (5.5)
| (10.2)
| 7.4
| 2.1
|
Spot market sales
| -
| -
| -
| (100.0)
| (100.0)
| (62.5)
| (67.7)
|
Miscellaneous
| 1.1
| (69.8)
| -
| 287.7
| -
| (61.0)
| -
|
Total
| 100.0
| (35.5)
| (10.9)
| 9.6
| (10.3)
| 13.6
| 2.0
|
OPERATING EXPENSES
Niagara Mohawk has taken two significant actions during the last several years that impact the components of its cost structure. Beginning in 1998, the MRA had the effect of lowering purchased power costs from IPPs by more than $500 million annually, net of purchases of power at market prices, while creating a regulatory asset that increases amortization expense by approximately $386.5 million per year and increasing interest expense due to the debt incurred to finance the MRA ($3.45 billion in 1998). In 1999 through 2001, Niagara Mohawk sold all of its generation assets, which reduced costs of ownership such as fuel, operating costs, property taxes and depreciation. However, Niagara Mohawk entered into PPAs or financial swaps with the buyers of the formerly owned generation assets, which were entered into as an integral part of the generation sales, that increased its electricity purchased power costs by $102.7 million and $18.9 million for the three months ended March 31, 2002 and 2001, respectively, and $130.9 million, $120.0 million and $125.4 million in the calendar years 2001, 2000 and 1999, respectively. These purchase power contracts mainly expire in 2003.
Electric Fuel and Purchased Power Costs for the quarters ended:
|
|
|
|
|
|
|
|
(in millions of dollars)
| March 31, 2002
| March 31, 2001
|
| (Combined)
| (Predecessor)
|
| Gwh
| Cost
| Gwh
| Cost
|
Fuel for electric generation:
|
|
|
|
|
Coal
| -
| $ -
| -
| $ -
|
Oil and Natural Gas
| -
| -
| 115
| 5.2
|
Nuclear
| -
| -
| 2,044
| 9.1
|
Total electric generation
| -
| -
| 2,159
| 14.3
|
|
|
|
|
|
Electricity purchased:
|
|
|
|
|
IPPs:
|
|
|
|
|
Capacity
| -
| 4.0
| -
| 4.4
|
Energy and taxes
| 671
| 46.8
| 1,128
| 63.8
|
Total IPP purchases
| 671
| 50.8
| 1,128
| 68.2
|
Generation PPAs:
|
|
|
|
|
Capacity
| -
| 6.5
| -
| 8.3
|
Energy and taxes
| 2,623
| 87.0
| 729
| 21.2
|
Total generation purchases
| 2,623
| 93.5
| 729
| 29.5
|
NYISO - energy purchases
| 3,525
| 102.0
| 2,715
| 135.7
|
NYISO - ancillary charges
| -
| 9.5
| -
| 8.5
|
Other purchases
| 1,974
| 39.4
| 1,990
| 37.7
|
Swap payments
| -
| 48.0
| -
| 15.6
|
Subtotal purchases
| 8,793
| 343.2
| 6,562
| 295.2
|
Deferral
| -
| -
| -
| (4.1)
|
Total purchases
| 8,793
| 343.2
| 6,562
| 291.1
|
|
|
|
|
|
Total generated and purchased
| 8,793
| 343.2
| 8,721
| 305.4
|
Delivery of energy for others, net of
|
|
|
|
|
losses and Niagara Mohawk use
| 627
| -
| 597
| -
|
| 9,420
| $ 343.2
| 9,318
| $ 305.4
|
|
|
|
|
|
Average Unit Cost (cents per KWh)*
|
|
|
|
|
Fuel for electric generation
|
| -
|
| 0.66
|
Electricity purchased
|
| 3.90
|
| 4.50
|
Combined unit cost
|
| 3.90
|
| 3.55
|
Electric Fuel and Purchased Power Costs for the years:
|
|
|
|
|
|
|
|
| (Predecessor)
|
|
|
(in millions of dollars)
| 2001
|
| 2000
|
| 1999
|
| Gwh
| Cost
| Gwh
| Cost
| Gwh
| Cost
|
Fuel for electric generation:
|
|
|
|
|
|
|
Coal
| -
| $ -
| -
| $ -
| 2,989
| $ 44.9
|
Oil and Natural Gas
| 115
| 5.2
| 764
| 35.4
| 3,228
| 104.9
|
Nuclear
| 6,666
| 32.0
| 7,962
| 39.0
| 7,166
| 36.9
|
Hydro
| -
| -
| -
| -
| 1,396
| -
|
Subtotal electric generation
| 6,781
| 37.2
| 8,726
| 74.4
| 14,779
| 186.7
|
Deferral
| -
| -
| -
| -
| -
| 3.0
|
Total electric generation
| 6,781
| 37.2
| 8,726
| 74.4
| 14,779
| 189.7
|
|
|
|
|
|
|
|
Electricity purchased:
|
|
|
|
|
|
|
IPPs:
|
|
|
|
|
|
|
Capacity
| -
| 14.1
| -
| 13.7
| -
| 13.8
|
Energy and taxes
| 3,340
| 186.0
| 5,077
| 273.6
| 6,768
| 324.9
|
Total IPP purchases
| 3,340
| 200.1
| 5,077
| 287.3
| 6,768
| 338.7
|
Generation PPAs:
|
|
|
|
|
|
|
Capacity
| -
| 27.5
| -
| 44.1
| -
| 42.8
|
Energy and taxes
| 3,839
| 119.1
| 3,274
| 92.9
| 3,490
| 80.9
|
Total generation purchases
| 3,839
| 146.6
| 3,274
| 137.0
| 3,490
| 123.7
|
NYISO - energy purchases
| 15,490
| 680.8
| 8,981
| 427.4
| 1,077
| 28.0
|
NYISO - ancillary charges
| -
| 42.1
| -
| 53.3
| -
| 4.6
|
Other purchases
| 7,788
| 141.2
| 8,785
| 147.5
| 11,229
| 217.4
|
Swap payments
| -
| 104.9
| -
| 110.5
| -
| 98.2
|
Subtotal purchases
| 30,457
| 1,315.7
| 26,117
| 1,163.0
| 22,564
| 810.6
|
Deferral
| -
| (11.5)
| -
| (18.9)
| -
| (3.6)
|
Total purchases
| 30,457
| 1,304.2
| 26,117
| 1,144.1
| 22,564
| 807.0
|
|
|
|
|
|
|
|
Total generated and purchased
| 37,238
| 1,341.4
| 34,843
| 1,218.5
| 37,343
| 996.7
|
Delivery of energy for others, net of
|
|
|
|
|
|
|
losses and Niagara Mohawk use
| 2,693
| -
| 1,463
| -
| (587)
| -
|
| 39,931
| $ 1,341.4
| 36,306
| $ 1,218.5
| 36,756
| $ 996.7
|
|
|
|
|
|
|
|
Average Unit Cost (cents per KWh)*
|
|
|
|
|
|
|
Fuel for electric generation
|
| 0.55
|
| 0.85
|
| 1.26
|
Electricity purchased
|
| 4.32
|
| 4.45
|
| 3.59
|
Combined unit cost
|
| 3.39
|
| 3.41
|
| 2.71
|
- The average unit cost does not include the deferred costs.
The above table presents the total costs for purchased electricity, while reflecting only fuel costs for Niagara Mohawk generation. Other costs of power production, such as property taxes, other operating expenses and depreciation are included within other income statement line items.
Niagara Mohawk’s electricity purchased increased $52.1 million or 17.9 percent in the three months ended March 31, 2002 as compared to the same period in 2001 and $160.1 million or 14.0 percent in calendar year 2001 and $337.1 million or 41.8 percent in calendar year 2000, primarily because Niagara Mohawk had sold its generation assets. Niagara Mohawk now purchases more of its remaining load requirement through the NYISO, (where the price of electricity was lower in 2001 as compared to 2000, as shown in the table above) or other parties (for a discussion of the portion of the purchases from the NYISO that are hedged, see Item 7A. Quantitative and Qualitative Disclosure About Market Risk - “Electricity Price Risk”). Although the prices Niagara Mohawk must pay for electricity are higher than the fuel costs incurred when the assets were owned, Niagara Mohawk avoids operating costs from running these plants, including labor, fuel, real estate taxes, and depreciation.
Significantly higher natural gas prices impacted Niagara Mohawk’s fuel and purchased power costs during the third and fourth quarters of 2000 and in early 2001, principally because restructured contracts with IPPs began indexing to natural gas prices in July 2000. Fuel and purchased power costs were also higher in the third and fourth quarters of 2000 and in early 2001 because of an indexed contract with the new owner of the Albany generating station and an indexed contract with an IPP not part of the MRA. Niagara Mohawk’s continued 25 percent ownership in the Roseton generating station also increased fuel and purchased power costs in the third and fourth quarters of 2000. The Roseton generating station was sold in January 2001. The Albany and Roseton stations are both fueled by oil or natural gas. With respect to its exposure to the restructured contracts with the IPPs and the Albany contract, in 2001 and through the first quarter of 2002, Niagara Mohawk took steps to hedge against further volatility in natural gas prices, largely by purchasing NYMEX gas futures contracts. Beginning in May 2002, Niagara Mohawk began purchasing NYMEX gas futures to hedge the period from July 2002 through March 2003. On September 1, 2001, the rate plan changes under the Power Choice agreement allowed for the pass-through of most commodity-related costs to customers. This pass-through of commodity costs to customers continues under the Merger Rate Plan.
IPP purchases decreased by $17.4 million in the three months ended March 31, 2002 as compared to the same period in 2001, since Niagara Mohawk entered into an agreement with one IPP that reduced the amount of energy it had to buy from them. In the three months ended March 31, 2001, Niagara Mohawk paid that IPP $18.4 million. Niagara Mohawk did not make any payments to that particular IPP in the same period in 2002. IPP purchases were lower in calendar year 2001 as compared to 2000 due to a decrease in hydro IPP production as a result of a reduction in water flow because of drier weather. The change in the deferral for electricity purchased is due to the regulatory treatment of the hydro PPA as discussed in Item 8. Financial Statements and Supplementary Data - Note 3. Rate and Regulatory Issues and Contingencies, “Deferred Loss on the Sale of Assets.”
Niagara Mohawk has entered into financial agreements with IPP Parties in connection with the MRA and with buyers of its previously owned coal and oil/gas fired facilities. The swap payments included in the Electric Fuel and Purchased Power Costs table are measured as the difference between the specified contract price and the market price of electricity, relative to respective notional quantities of electricity. See Quantitative and Qualitative Disclosures About Market Risk - “Commodity Price Risk” and Item 8. Financial Statements and Supplementary Data - Note 9. Fair Value of Financial and Derivative Financial Instruments, “Swap Contracts Regulatory Asset.” The IPP indexed swap contract prices were fixed for the initial two years of the contracts, then on July 1, 2000 began indexing to various factors including the cost of natural gas and inflation. Because of increases in the cost of natural gas, the indexing formula increased the contract prices for July through December 2000 by $54.6 million or 51 percent higher, for 2001 by $70.5 million or 34 percent higher and for the three months ended March 31, 2002 by $18.1 million or 33.4 percent higher than originally forecast. The hedges that Niagara Mohawk entered into mitigated the increases attributable to natural gas price indexing that Niagara Mohawk experienced. The Albany swap contract contains two provisions that allow Niagara Mohawk to better manage the increases in the indexed prices. Niagara Mohawk has the option of deciding between oil and natural gas for use in the indexing formula, and can call on notional quantities during periods when market prices are favorable. Under Power Choice, Niagara Mohawk absorbed the increases in the indexed contract prices until August 31, 2001. Thereafter, changes in prices are borne by customers.
Niagara Mohawk has taken several steps to reduce exposure to further variability. One of the eight IPP swap contracts was renegotiated to fix the gas price used for indexing for calendar year 2002. Also, for 2001 and the three months ended March 31, 2002, Niagara Mohawk entered into NYMEX gas futures contracts to hedge the escalation in the natural gas price component for the remaining seven IPP indexed swap contracts. In April 2002, Niagara Mohawk again began to purchase NYMEX futures contracts to hedge these swaps for the period May 2002 through June 2003.
The method of accounting for gas futures is in accordance with SFAS No. 133. At January 1, 2001, with the adoption of SFAS No. 133, Niagara Mohawk began accounting for all financial instruments in accordance with this new standard. Prior to 2001, SFAS No. 80, “Accounting for Futures Contracts” was followed. Futures contract and basis swaps are derivatives as defined by SFAS No. 133. These instruments function operationally as hedges, however, by rule they do not qualify for hedge accounting treatment under SFAS No. 133 because they are derivatives used to hedge other derivatives. Since the current rate treatment agreement allows for recovery of these items, the gains or losses are deferred in a regulatory asset or liability until the hedged transactions occur. At that time, the gains or losses and the payments under the indexed swap contracts are recognized in “Electricity purchased” in the Consolidated Statements of Income.
The item being hedged is the cost of natural gas as a component of the indexing of the IPP indexed swap contract prices and one non-MRA IPP contract. Simply stated, the prices Niagara Mohawk pays under these contracts rise and fall with the price of natural gas. The extent to which the cost of gas impacts these contracts varies by contract, but on average represents approximately 60 percent to 70 percent of the contract prices.
The decrease in IPP purchases in 2000 as compared to 1999 is primarily due to the additional IPP contract buyouts made in 1999 and 2000. The amortization of the buyout costs is included on the “Amortization of stranded costs” line item of the Consolidated Statements of Income. The reductions in IPP purchases were offset in part by an increase in hydro IPP production due to an increase in water flow compared to 1999. Niagara Mohawk is required to purchase 100 percent of the output of these plants, in accordance with the hydro IPP contracts. Included in other purchases for the year ended December 31, 1999 are purchases from the New York Power Pool (“NYPP”), the predecessor of the NYISO. The decrease in other purchases for the year ended December 31, 2000 is primarily due to the elimination of NYPP.
Included in the NYISO ancillary charges is an operating reserve charge. This charge is based upon market prices, which significantly increased during the month of February 2000. Approximately one-half of the operating reserve charges have been reimbursed under the Huntley and Dunkirk financial swaps or passed on to customers that are charged a market price for commodity. During the first quarter of 2000, the NYISO, Niagara Mohawk, among others, petitioned the FERC to revise the calculation of this charge and requested a refund on the over charge. The NYISO temporarily set a price cap on the charge, which went into effect in March 2000. On May 31, 2000, the FERC denied the portion of the petition regarding the refund on the resulting overcharge. The NYISO filed an appeal to a denial of a rehearing request on November 16, 2001 in the D.C. District Court which Niagara Mohawk, among others, support.
Niagara Mohawk’s fuel for electric generation decreased $14.3 million or 100.0 percent in the three months ended March 31, 2002 as compared to the same period in 2001 and decreased $37.2 million or 50.0 percent in calendar year 2001 as compared to 2000 and $115.3 million or 60.8 percent in calendar year 2000 as compared to 1999, primarily as a result of the timing of the various sales of the generation assets. In addition, generation from Niagara Mohawk’s nuclear plants was reduced due to an extended outage of one of the nuclear plants in 2001.
Niagara Mohawk’s gas purchased expense decreased $119.6 million in the three months ended March 31, 2002 as compared to the same period in 2001 primarily as a result of lower natural gas prices. Dth purchased and withdrawn from storage were down 0.4 million Dth. Niagara Mohawk’s net cost per Dth, as charged to expense, including the effects of the gas commodity cost adjustment clause, decreased to $3.97 in the three months ended March 31, 2002 from $7.53 the same period in 2001 and increased to $6.45 in calendar year 2001 from $4.42 in calendar year 2000 and from $3.48 in calendar year 1999.
Niagara Mohawk’s gas purchased expense increased $61.8 million in 2001, primarily as a result of higher natural gas prices which more than offset reduced sales volumes. Dth purchased and withdrawn from storage were down 16.1 million Dth.
Niagara Mohawk’s gas purchased expense increased $90.3 million in 2000. This was a result of a 28.1 percent increase in the average cost per Dth purchased ($86.5 million), an 8.1 million increase in Dth purchased and withdrawn from storage for ultimate consumers sales ($28.5 million), offset by a $24.7 million decrease in purchased gas costs and certain other items recognized and recovered through the gas commodity cost adjustment clause.
The 2000 increase in the purchased gas costs and certain other items recognized and recovered through the regulated gas cost adjustment mechanism was primarily due to a change in the regulatory treatment for these costs in accordance with Niagara Mohawk’s temporary gas rate agreement that had been in place since the expiration of the 1996 rate agreement on November 1, 1999. The result of this change in recovery method caused Niagara Mohawk to experience a lower gas margin during high volume periods, such as in the winter months, and a higher gas margin during low volume periods, such as in the summer months. The annual gas margin for 2000 was lower because certain cost saving incentives earned in 1999 are no longer available under the gas rate agreement.
Other operation and maintenance expense for Niagara Mohawk has increased $26.7 million in the three months ended March 31, 2002 as compared to the same period in 2001, primarily as a result of higher employee’s welfare expense primarily due to separation costs of $7.1 million, higher pension and other postretirement benefits expense of $14.3 million, higher compensation accruals of $5.9 million, incremental merger related costs of approximately $11.4 million, incremental storm expense of $13.9 million and a higher systems benefit charge of $5.6 million. The systems benefits charge is offset in electric revenues. These increases were partially offset by lower nuclear operation expense as a result of the sale of the nuclear assets of $35.6 million.
Other operation and maintenance expense for Niagara Mohawk has increased $64.5 million in 2001, primarily as a result of an increase in transmission expense of $33.9 million in part due to TCCs purchased through the auction process conducted by the NYISO, an increase in bad debt expense of $7.7 million which reflects the impact of the higher natural gas prices being passed on to customers, a higher systems benefit charge of $23.1 million, higher compensation accruals of $12.7 million and higher pension expense of $18.7 million. The systems benefits charge and the TCC expense are both offset in electric revenues. The incremental merger related costs for 2001 were approximately $3.8 million. In addition, the insurance proceeds and disaster relief associated with the 1998 ice storm restoration effort was $5.6 million in 2001 as compared to $29.9 million in 2000. Offsetting these increases were lower injuries and damages expense of $11.9 million, lower employees welfare expense of $6.3 million, lower customer services system expense of $7.4 million, lower non-nuclear operation and maintenance expense as a result of the sale of the non-nuclear assets of $15.7 million and lower Unit 1 and Unit 2 operation and maintenance expense, net of deferrals and amortizations, of $21.2 million.
Other operation and maintenance expense for Niagara Mohawk decreased $27.3 million in 2000 as compared to 1999 primarily due to the recognition of $29.9 million of insurance proceeds and disaster relief associated with the 1998 ice storm restoration effort and lower fossil and hydro maintenance costs due to the sale of the fossil and hydro generation plants during 1999 and 2000. Also, bad debt expense decreased in 2000 by $9.2 million for Niagara Mohawk. Bad debt expense for 2000 reflects the increased risk of collection due to significantly higher gas prices. Offsetting these reductions were increased costs associated with greater emphasis placed on preventive maintenance programs related to reliability, as well as adjustments to the deferred loss on sale of assets as a result of PSC regulatory review. The increase in the common stock price of Holdings, due to the announced merger, also increased the expense recognized for stock-based compensation programs.
In 2001, Niagara Mohawk recorded a non-cash write-off of $123 million before tax, which is reflected on the disallowed nuclear investment costs line item on the consolidated statements of income in accordance with the PSC Order approving the sale of the nuclear assets. (See Item 8. Financial Statements and Supplementary Data, - Note 3. Rate and Regulatory Issues and Contingencies - “Deferred loss on the sale of assets,” for a further discussion of the accounting and ratemaking treatment related to the sale of the nuclear assets).
Amortization of stranded costs for Niagara Mohawk decreased by $26.6 million in the three months ended March 31, 2002 as compared to the same period in 2001 and increased by $17.6 million in 2001 and increased $12.1 million for 2000. Under Power Choice, the MRA regulatory asset was being amortized ratably over ten years. Under the Merger Rate Plan, which began on January 31, 2002, the MRA regulatory asset and other stranded costs are being amortized unevenly over ten years, with larger amounts being amortized in the latter years. See Note 3. Rate and Regulatory Issues and Contingencies - “Merger Rate Plan Stranded Costs” for a further discussion of the ratemaking treatment related to this regulatory asset.
Depreciation and amortization expense for Niagara Mohawk decreased approximately $28.2 million in the three months ended March 31, 2002 as compared to the same period in 2001 and decreased by $19.6 million in calendar year 2001 as compared to 2000 and $33.1 million in calendar year 2000 as compared to 1999, primarily as a result of the sale of Niagara Mohawk’s generation assets at various times during 1999 through 2001. However, the decreases in 2000 are partially offset as a result of placing in service several computer system projects in 1999 with depreciable lives that are significantly shorter than typical transmission and distribution assets.
Other taxes for Niagara Mohawk has increased $10.8 million in the three months ended March 31, 2002 as compared to the same period in 2001. In the first three months ended March 31, 2001, Niagara Mohawk received $22.2 million in GRT Power for Jobs credits due to a prior year true-up. GRT credits of $1.2 million were received in the same period in 2002 due to a prior year true-up. This increase was partially offset by a reduction in the GRT tax rate ($6.1 million) and a reduction in property taxes of $4.4 million primarily resulting from the sale of the nuclear assets in November 2001.
Other taxes for Niagara Mohawk decreased in 2001 due to an increase in GRT credits ($40.2 million) received primarily due to an increase in the customers in Niagara Mohawk’s service territory that participate in New York State’s Power for Jobs program, a reduction in the GRT tax rate ($4.1 million) primarily as a result of the state tax law changes and a reduction in property taxes of $4.9 million primarily resulting from the sale of the nuclear assets in November 2001. Other taxes for Niagara Mohawk has decreased in 2000 as a result of a reduction in the GRT tax rate primarily as a result of the state tax law changes as further explained in Item 8. Financial Statements and Supplementary Data - Note 1. Summary of Significant Accounting Policies, “Basis of Presentation,” as well as a reduction in property taxes resulting from the sale of generating assets.
Niagara Mohawk’s other income (deductions) in the three months ended March 31, 2002 increased $3.1 million primarily due to the interest income received on the note receivable from Constellation related to the nuclear sale of $6.8 million and carrying charges on IPP buy out contract adjustments of $2.2 million. In the three months ended March 31, 2001, other income reflected the recording of a non-cash incentive related to generation sales of $6.8 million. No incentive was recorded in the three months ended March 31, 2002.
Niagara Mohawk’s other deductions in 2001 decreased $10.6 million, respectively, due to an increase in the fossil/hydro auction incentive of $4.0 million, interest income received on the note receivable from Constellation related to the nuclear sale of $4.1 million, the receipt of multi-tax refunds from a previously owned subsidiary of $3.9 million for tax periods prior to 1995, and a lower amount deferred in connection with MRA interest rate savings of $5.5 million. In approving Power Choice, the PSC ordered that any savings from any reduction in the interest associated with the debt issued in connection with the MRA financing as compared to assumptions underlying Niagara Mohawk’s Power Choice filing be deferred for future disposition. These reductions to other deductions were partially offset by an increase in service reliability incentive penalties of $6.5 million primarily for the rate year ended August 31, 2001. Also, in 2000 other deductions included a loss on the early extinguishment of debt of $1.4 million as compared to zero in 2001.
Niagara Mohawk’s other income/deductions in 2000 decreased $16 million in part due to the decrease in interest income, lower AFC, lower loss on the early extinguishment of debt in 2000, and higher carrying charges as compared to 1999. This was partially offset by a lower amount deferred in connection with MRA interest rate savings.
Niagara Mohawk’s interest charges decreased in the three months ended March 31, 2002 and 2001 and 2000 mainly due to the repayment of debt during 1999 through 2001 and to a lesser extent, lower rates.
Dividends on Niagara Mohawk’s preferred stock decreased $0.1 million from the three months ended March 31, 2002 as compared to the same period in 2001 due to preferred stock redemptions, decreased $0.6 million from 2000 to 2001 due to sinking fund redemptions and decreased $5.4 million from 1999 to 2000, primarily reflecting the 1999 refunding of $150 million of preferred stock from a 9.5 percent rate to a 6.9 percent rate as well as sinking fund redemptions and variations in dividend rates on the adjustable rate series of preferred stock. The weighted average long-term debt interest rate and preferred dividend rate paid, reflecting the actual cost of variable rate issues, were 7.61 percent and 6.19 percent, respectively in 2001 and were 7.90 percent and 6.21 percent, respectively in 2000.
Niagara Mohawk’s income taxes increased approximately $12.7 million in the three months ended March 31, 2002 primarily due to higher book taxable income.
The 2001 increase in Niagara Mohawk’s income tax benefit of approximately $65.3 million, respectively, is due primarily to the recording of previously deferred investment tax credits related to the sale of the nuclear assets of $79.7 million and the recording of the tax benefit of $43.1 million related to the non-cash write-off of $123 million of disallowed nuclear investment costs, partially offset by an increase in tax expense due to an increase in book taxable income.
The 2000 decrease in Niagara Mohawk’s income taxes of approximately $15.7 million is primarily due to lower book taxable income. See Item 8. Financial Statements and Supplementary Data, - Note 6. Federal, State and Foreign Income Taxes, for a reconciliation of the tax computed at the statutory rate.
EFFECTS OF CHANGING PRICES
Niagara Mohawk is especially sensitive to inflation because of the amount of capital it typically needs and because its prices are regulated using a rate-base methodology that reflects the historical cost of utility plant.
Niagara Mohawk’s consolidated financial statements are based on historical events and transactions when the purchasing power of the dollar was substantially different than now. The effects of inflation on most utilities, including Niagara Mohawk, are most significant in the areas of depreciation and utility plant. Niagara Mohawk could not replace its utility assets for the historical cost value at which they are recorded on its books. In addition, Niagara Mohawk would not replace these with identical assets due to technological advances and competitive and regulatory changes that have occurred. In light of these considerations, the depreciation charges in operating expenses do not reflect the cost of providing service if new facilities were installed. See “Long Term” below for a discussion of Niagara Mohawk’s future capital requirements.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position. Niagara Mohawk’s capital structure at March 31, 2002, December 31, 2001 and 2000 were as follows:
| March 31,
|
| December 31,
|
%
| 2002
|
| 2001
|
| 2000
|
| (Successor)
|
| (Predecessor)
|
|
|
|
| RESTATED
| RESTATED
|
|
|
|
|
|
|
Long-term debt
| 60.7
|
| 64.1
|
| 65.1
|
Preferred stock
| 1.3
|
| 6.3
|
| 6.1
|
Common equity
| 38.0
|
| 29.6
|
| 28.8
|
The culmination of the MRA in 1998 significantly increased the leverage of Niagara Mohawk. However, the increased operating cash flow resulting from the MRA and Power Choice agreement, including the proceeds from the sale of the generation assets, and the repayment of debt, has reduced and should continue to reduce the leverage in the capital structure. In March 2002, Niagara Mohawk redeemed several series of preferred stock.
Fixed charges exceeded earnings before income taxes and fixed charges by $71.2 million in the twelve months ended March 31, 2002, $59.5 million in 2001, $41.2 million in 2000, and $7.5 million in 1999 resulting in a ratio of earnings to fixed charges of less than 1.00. The MRA and the Power Choice agreements have the effect of substantially depressing earnings, while at the same time substantially improving operating cash flows. The closing of the merger with National Grid and the related push down and allocation of the purchase price along with the implementation of the Merger Rate Plan will continue to effect the reported results of Niagara Mohawk prospectively. See “Merger Rate Plan” for a further discussion of how the closing of the merger with National Grid will continue to impact the future results on Niagara Mohawk.
In 1999 and 2000, Niagara Mohawk decided to make changes to its capital structure in light of its scheduled debt reduction program and its divestiture of its electric generation assets. As a result, Niagara Mohawk refinanced its preferred stock to take advantage of lower dividend rates and repurchased Holdings’ common stock. In addition, Niagara Mohawk redeemed several series of preferred stock. See Item 8. Financial Statements and Supplementary Data - Note 4. Capitalization, for a further discussion of the repurchase of Holdings’ common stock.
LIQUIDITY AND CAPITAL RESOURCES
Short Term. At March 31, 2002, Niagara Mohawk’s principal sources of liquidity included cash and cash equivalents of $9.9 million and accounts receivable of $534.9 million. Niagara Mohawk has a negative working capital balance of $811.9 million primarily due to long-term debt due within one year of $544.6 million and short-term debt of $419.0 million. Ordinarily, construction related short-term borrowings are refunded with long-term securities on a periodic basis. This approach generally results in a working capital deficit. Working capital deficits may also be a result of the seasonal nature of Niagara Mohawk’s operations as well as the timing of differences between the collection of customer receivables and the payments of fuel and purchased power costs. As discussed below, Niagara Mohawk believes it has sufficient cash flow and borrowing capacity to fund such deficits as necessary in the near term.
Niagara Mohawk had short-term debt of $419 million outstanding at March 31, 2002, which included $343 million of borrowings from other National Grid USA companies through the Money Pool and $76 million of borrowings from Holdings. Niagara Mohawk borrowed this money to redeem several series of preferred stock (see Item 8. Financial Statements and Supplementary Data - Note 4. Capitalization, for a further discussion of the repurchase of Niagara Mohawk’s preferred stock) and to redeem $119 million 8-3/4 percent first mortgage bonds in March 2002, prior to its scheduled maturity.
Net cash from operating activities was $79.8 million for Niagara Mohawk for three months ended March 31, 2002 which funded its acquisition of utility plant and the retirement of certain debt obligations. Niagara Mohawk has a senior bank facility agreement that provides Niagara Mohawk with $524 million of credit consisting of a five-year $100 million revolving credit facility (expires May 31, 2005), and $424 million for letters of credit with a three-year term (expires June 2, 2003). The letter of credit facility provides credit support for Niagara Mohawk’s adjustable rate pollution control revenue bonds issued through the New York State Energy Research and Development Authority. As of March 31, 2002, Niagara Mohawk has no loans outstanding under the revolving credit facilities. Niagara Mohawk also has the ability to issue first mortgage bonds to the extent that there have been maturities since June 30, 1998. Through March 31, 2002, Niagara Mohawk had $639 million in such first mortgage bond maturities.
Niagara Mohawk has established a single-purpose, financing subsidiary, NM Receivables LLC (“NMR”), whose business consists of the purchase and resale of an undivided interest in a designated pool of Niagara Mohawk customer receivables, including accrued unbilled revenues. From the fourth quarter of 1999 through April 2000, and in September 2000 through December 2000, and during February 2001, NMR was not in compliance with a certain statistical ratio relating to the pool of receivables sold. The purchaser granted waivers for this period. NMR was in compliance with the ratio for the months of May through August 2000, January 2001 and March through May 2001. The amount of receivables sold at June 30, 2001 was $290 million, which exceeded the amount that could be supported by the then outstanding accounts receivable. Subsequently, the amount of receivables sold was reduced to bring Niagara Mohawk back into compliance.
At March 31, 2002, no receivables had been sold by NMR to a third party. At December 31, 2001, and 2000, $132.3 million and $230.1 million, respectively, of receivables had been sold by NMR to a third party. NMR has the discretion to increase or decrease the actual amount sold, limited to the lesser of an amount determined from the receivables then outstanding, or the facility maximum amount of $300 million. The undivided interest in the designated pool of receivables was sold with limited recourse. The agreement provides for a formula based loss reserve pursuant to which additional customer receivables are assigned to the purchaser to protect against bad debts. See Item 8. Financial Statements and Supplementary Data - Note 8. Commitments and Contingencies, for a further discussion of this customer receivables program.
Niagara Mohawk’s long-term debt due within one year is $544.6 million at March 31, 2002. In addition, construction expenditures planned within one year are estimated to be $214 million. These capital requirements are planned to be financed primarily from internally generated funds, borrowings against the senior bank facility, sales of accounts receivable and borrowings from other National Grid USA companies through the Money Pool or directly.
Niagara Mohawk’s net cash used in investing activities increased $44.9 million in three months ended March 31, 2002 as compared to the same period in 2001. This increase was primarily as a result of no proceeds being received in the three months ended March 31, 2002 from the sale of generation assets as compared to proceeds of $83.8 million being received in the same period in 2001 from such generation sales. This increase was partially offset by an increase in other investments of $31.5 million.
Niagara Mohawk’s net cash used in financing activities increased $21.3 million as compared to the same period in 2001, primarily due to the redemption of several series of preferred stock, partially offset by an increase in short-term debt used to finance such preferred stock redemptions of $304.0 million.
Long Term. Niagara Mohawk’s total capital requirements consist of amounts for its construction program, working capital needs, maturing debt issues and sinking fund provisions on preferred stock, as follows:
| Payments Due for the fiscal years ended March 31,
|
|
|
|
| (in millions)
|
|
|
|
Capital Requirements
|
| 2003
|
| 2004
|
| 2005
|
| thereafter
|
Construction expenditures (excluding AFC)
|
| $ 215.0
|
| $ 210.0
|
| $ 205.0
|
| not available
|
Mandatory debt payments
|
| 543.8
|
| 611.8
|
| 533.0
|
| 2,461.0
|
IPP and Fossil/Hydro Swaps
|
| 128.1
|
| 123.3
|
| 134.3
|
| 468.6
|
NYPA energy and capacity commitments
|
| 79.1
|
| 70.3
|
| 70.3
|
| 210.9
|
Electric purchase power commitments
|
| 580.5
|
| 555.2
|
| 474.3
|
| 2,908.5
|
Gas supply commitments
|
| 142.0
|
| 114.9
|
| 120.0
|
| 132.4
|
Total
|
| $1,688.5
|
| $1,685.5
|
| $1,536.9
|
| $ 6,181.4
|
|
|
|
|
|
|
|
|
|
Construction expenditure levels for the energy delivery business are generally consistent from year-to-year. The estimate of construction additions included in capital requirements for the fiscal years ended March 31, 2003 through 2005 will be reviewed by management to give effect to the overall objective of further reducing construction spending where possible.
See Item 8. Financial Statements and Supplementary Data - Note 8. Commitments and Contingencies, for a detailed discussion of the NYPA capacity commitments, electric purchase power commitments and the gas supply, storage and pipeline commitments and Note 9. Fair Value of Financial and Derivative Financial Instruments for a detailed discussion of IPP and fossil/hydro swaps and Note 4. Capitalization for a detailed discussion of mandatory debt and preferred stock.
These capital requirements are planned to be financed primarily from internally generated funds, borrowings against the senior bank facility and borrowings from other National Grid USA companies through the Money Pool or directly. As discussed above, Niagara Mohawk has available $639 million of first mortgage bonds, which will increase to over $1,500 million in 2005 based on scheduled maturities.
External financing plans are subject to periodic revision as underlying assumptions are changed to reflect developments and market conditions. The ultimate level of financing during the next few years will be affected by, among other things:
- uncertain energy demand due to the weather and economic conditions and obligations to serve as provider of last resort,
- Niagara Mohawk’s competitive position and the extent to which competition penetrates its markets, and
- the cash tax benefits anticipated because the MRA generated a net tax operating loss (“NOL”) carryforward in 1998.
In December 1998, Niagara Mohawk received a ruling from the Internal Revenue Service (“IRS”) to the effect that the amount of cash and the value of common stock that was paid to the subject terminated IPP Parties was deductible and generated a substantial net operating loss (“NOL”) for federal income tax purposes, such that Niagara Mohawk did not pay federal income taxes for the 1998 tax year. Further, Niagara Mohawk has carried back unused NOL to the years ended 1996 and 1997, and also for the years 1988 through 1990, which resulted in a tax refund of $135 million received in January 1999. As a result of the merger with National Grid, (Item 8. Financial Statements and Supplementary Data - Note 1. Summary of Significant Accounting Policies, “Holding Company Formation” and “Basis of Presentation”), Niagara Mohawk is now part of the consolidated tax return filing group of National Grid USA. National Grid anticipates that the consolidated tax filing group will be able to utilize the remaining $1.724 billion NOL carryforward, as of March 31, 2002, to offset income earned in the future, before the expiration date of the NOLs in 2019. National Grid’s ability to utilize the NOL carryforward generated as a result of the MRA and the utilization of alternative minimum tax credits, could be affected by the rules of Section 382 of the Internal Revenue Code.
NEW ACCOUNTING STANDARDS: In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations initiated or acquired after June 30, 2001 be accounted for under the purchase method. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill’s impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. Niagara Mohawk adopted SFAS No. 142 on January 1, 2002. Prior to the merger with National Grid on January 31, 2002, Niagara Mohawk did not have any goodwill recorded on its books. Niagara Mohawk will be required to review the goodwill of approximately $1.146 billion for impairment at least annually. Niagara Mohawk performed a comprehensive impairment test at March 31, 2002. As a result of such analysis, it was determined there was no impairment of goodwill at that date.
In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 defines a legal obligation as an obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. The provisions of SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. Niagara Mohawk is currently evaluating the effect of this statement on Niagara Mohawk’s results of operations and financial position.
On January 1, 2002, Niagara Mohawk adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations - Reporting the Effects of Disposal of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” related to the disposal of a segment of a business. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and resolves significant implementation issues related to SFAS No. 121. The adoption of SFAS No. 144 had no material impact on Niagara Mohawk’s financial position and results of operations.
In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statement Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This statement updates, clarifies and simplifies existing accounting pronouncements. Some of the provisions of this pronouncement are effective for specific transactions occurring after May 15, 2002, with full implementation for financial statements issued after May 15, 2002. Niagara Mohawk has applied this standard to prior years’ restatements. For further information see Note 13 in the accompanying footnotes of Niagara Mohawk’s Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Niagara Mohawk is exposed to various market risks because of transactions conducted in the normal course of business. The financial instruments held or issued by Niagara Mohawk are used for investing, financing, hedging or cost control and not for trading.
Quantitative and qualitative disclosures are discussed by market risk exposure category:
Interest Rate Risk
Commodity Price Risk
Equity Price Risk
Foreign Currency Exchange Risk
An Exposure Management Committee (“EMC”) was set up to monitor and control efforts to manage these risks. The EMC issues and oversees the Financial Risk Management Policy (the “Policy”) that outlines the parameters within which corporate managers are to engage in, manage, and report on various areas of risk exposure. At the core of the Policy is a condition that Niagara Mohawk will engage in activities at risk only to the extent that those activities fall within commodities and financial markets to which it has a physical market exposure in terms and in volumes consistent with its core business. That core business is to deliver energy, in the form of electricity and natural gas, to customers within Niagara Mohawk’s service territory. The policies of Niagara Mohawk may be revised as its primary markets continue to change, principally as increased competition is introduced and the role of Niagara Mohawk in these markets evolves.
Interest Rate Risk. Niagara Mohawk’s exposure to changes in interest rates is due to its financing through a senior debt facility, several series of adjustable rate promissory notes, adjustable rate preferred stock and short-term borrowings. See Item 8. Financial Statements and Supplementary Data - Note 4. Capitalization and Note 5. Bank Credit Arrangements. At March 31, 2002, Niagara Mohawk had no outstanding balance on the revolving credit facility. The adjustable rate promissory notes are currently valued at $413.8 million. The three series of adjustable rate preferred stock, valued at $118.8 million, open at year-end December 31, 2001 have been retired. Another issue of fixed-adjustable rate preferred stock is fixed at 6.9 percent annual dividend rate for the first 5 years (ending in 2004) then adjusts and is not considered adjustable for this analysis. This issue was reduced from $150.0 million to $55.7 million between December 31, 2001 and March 31, 2002. There was $419 million of short term borrowing at March 31, 2002 consisting of $343 million borrowed from other National Grid USA companies and $76 million borrowed from NM Holdings, Inc. There were no such borrowings at December 31, 2001.
There is no interest rate cap on the promissory notes. The interest on the revolving credit facility is variable, and tied to the London Interbank Offered rate, plus a number of basis points predicated on the amount of the borrowing. As stated, currently, there are no borrowings under this facility.
The interest rates on both types of short term borrowings are tied to the published, 30 day, commercial paper rate with the amount borrowed from National Grid adjusted monthly and the amount borrowed from Holdings fixed at the rate at the time at which the funds were drawn.
Niagara Mohawk also maintains long-term debt at fixed interest rates. A controlling factor on the exposure to interest rate variations is the mix of fixed to variable rate instruments maintained by Niagara Mohawk. For the three months ended March 31, 2002 and years ended December 31, 2001 and 2000, adjustable rate instruments comprise 10.5 percent, 7.3 percent and 9.3 percent of total capitalization. For the same periods, the revolving credit facility and promissory notes are 8.8 percent, 8.3 percent and 11.0 percent of total long-term debt. The proportion of adjustable instruments to total capitalization increased because of the addition of the short term borrowings at the adjustable commercial paper rate. In the aggregate at March 31, 2002, and December 31, 2001 and 2000 variable rate instruments do not constitute a significant portion of total capitalization and debt, thus limiting Niagara Mohawk’s exposure to interest rate fluctuations.
If interest rates averaged 1 percent more in the next fiscal year versus 2001, Niagara Mohawk’s interest expense would increase and income before taxes decrease by approximately $7.6 million. This figure was derived by applying a hypothetical 1 percent variance to the variable rate debt of $413.8 million plus the short-term variable borrowings of $343 million at March 31, 2002. Changes in the actual cost of capital from levels assumed in rates would create either exposure or opportunity for Niagara Mohawk until these changes could be reflected in future prices.
Commodity Price Risk - Niagara Mohawk. Niagara Mohawk’s ratepayers are exposed to commodity market price fluctuations in two basic areas: (1) the cost of electricity and natural gas for resale to its customers, and (2) the impact that natural gas, electricity and oil prices have on the swap contracts and one large non-MRA IPP contract. Where possible, Niagara Mohawk takes positions in order to mitigate expected price increases but only to the extent that quantities are based on expectations of delivery. Niagara Mohawk attempts to mitigate exposure through a program that hedges risks as appropriate. Niagara Mohawk does not speculate on movements in the underlying prices for these commodities. Commodity purchases are based on analyses performed in relation to expected customer deliveries for electricity and natural gas. The volume of commodities covered by hedging contracts does not exceed amounts needed for customer consumption in the normal course of business or to offset adverse price movements in the contracts being hedged.
With respect to electricity, as customers choose an alternative supplier, Niagara Mohawk sheds commodity risk. In addition, many large customers that continue to purchase electricity from Niagara Mohawk have agreed to take market price risk, further lowering commodity risk. For the remaining customers that have firm prices, Niagara Mohawk has hedged a significant portion of the commodity costs through various physical and financial contracts. As these contracts expire, customers who buy electricity from Niagara Mohawk will bear the commodity price risk for energy associated with the expiring contracts. Increases in the cost of natural gas, primarily as it is used as a fuel in electricity generation, raises issues surrounding the ability for ratepayers to absorb such price volatility. Although the current rate agreement allows for a pass-through of the commodity cost of power, Niagara Mohawk considers it prudent to perform certain hedging activities as a means of controlling cost volatility.
As part of the MRA, Niagara Mohawk entered into restated indexed swap contracts with eight IPPs. The company also entered into financial swap agreements associated with the sales of the Huntley, Dunkirk, and Albany generating stations. See Item 8. Financial Statements and Supplementary Data - Note 9. Fair Value of Financial and Derivative Financial Instruments, for a more detailed discussion of these swap contracts.
The fair value of the liability under the swap contracts is based upon the difference between projected future market prices and projected contract prices applied to the notional quantities and discounted at 8.5 percent. This liability was approximately $653.9 million, $733.5 million and $778.2 million at March 31, 2002, December 31, 2001 and 2000, respectively and is recorded on Niagara Mohawk’s balance sheets as a “Liability for swap contracts.” The discount rate is based upon comparable debt instruments of Niagara Mohawk at the time these contracts were initiated. Based upon the PSC’s approval of the restated contracts, including the indexed swap contracts, as part of the MRA and being provided a reasonable opportunity to recover the estimated indexed swap liability from customers, Niagara Mohawk has recorded a corresponding regulatory asset. The amounts of the recorded liability and regulatory asset are sensitive to changes in anticipated future market prices and changes in the indices upon which the indexed swap contract payments are based.
If the indexed contract price were to increase or decrease by 1 percent, Niagara Mohawk would see a $14.8 million increase or decrease in the present value of the projected over-market exposure. If the market prices were to increase or fall by 1 percent, Niagara Mohawk would see a $9.2 million decrease or increase in the projected over-market exposure. If the discount rate were one half percent higher or lower, the net present value of the projected over market exposure would decrease or increase by approximately $9.6 million.
The area of exposure to cash flow is in the indexing of the contract prices for the IPP indexed swaps and the Albany swap (Huntley and Dunkirk have fixed contract prices) and a non-MRA IPP where payments are based on gas prices. The contract payments under the IPP and Albany swaps and the non-MRA IPP are indexed to the costs of fuel, primarily natural gas; Albany can be oil or gas. As fuel costs rise, the payments Niagara Mohawk pays under those contracts increase. The current rate plan allows the pass-through of the commodity cost of power to customers; however, Niagara Mohawk still considers it prudent to use certain financial instruments to limit the impact of commodity fluctuations on these payments.
Niagara Mohawk has taken steps to mitigate the potential impact that fuel prices would have on the payments for the IPP and Albany swaps, and a physical power contract with a non-MRA IPP. To limit this exposure, Niagara Mohawk purchased NYMEX gas futures contracts and entered into fixed-for-floating swaps on gas basis costs. To hedge the Albany swap, Niagara Mohawk entered into a fixed-for-floating swap on the cost of oil. To hedge the non-MRA IPP contract, Niagara Mohawk purchased NYMEX gas futures. See Item 8. Financial Statements and Supplementary Data - Note 9. Fair Value of Financial and Derivative Financial Instruments, for a more detailed discussion of these contracts.
Because the greatest risk existed through the rate plan year which ended August 2001, Niagara Mohawk attempted to hedge 100 percent of the potential impact of gas prices on the contracts using the combination of NYMEX futures, gas basis and oil swaps. With the regulatory recovery of electric commodity costs beginning in September 2001, the gas basis and oil swaps were allowed to expire and were not renewed after August 2001. Even with the regulatory recovery of the cost of these contracts, Niagara Mohawk still believes it is prudent to continue to hedge the payments going forward. For the period September 2001 through March 2002, gas futures were purchased to hedge approximately 50 percent of the amount needed to offset gas price changes. Niagara Mohawk is extending this hedging program throughout the remainder of 2002 and has begun purchasing NYMEX futures to hedge approximately 100 percent of the gas price exposure for the period May 2002 through June 2003.
At March 31, 2002, Niagara Mohawk did not have any open NYMEX futures for this purpose. At December 31, 2001, the open NYMEX futures Niagara Mohawk had in place to hedge the payments under these contracts had a fair value of a loss of ($6.8) million.
Gas Supply Price Risk: The cost of natural gas sold to customers fluctuates during the year with prices historically most volatile in the winter months. In July 2000, the PSC approved a multi-year gas rate settlement agreement that includes a provision for the collection or pass back of increases or decreases in purchased gas costs. The PSC has also mandated that Niagara Mohawk attempt to reduce the price volatility in the gas commodity portion of customers’ bills. In response to this mandate, Niagara Mohawk’s Board of Directors has authorized the use of futures, options, and swaps to hedge against gas price fluctuations. The hedging program will be consistent with the Financial Risk Management Policy and will be monitored by the EMC.
Niagara Mohawk attempts to hedge approximately 50 percent of its forecasted annual demand for gas through a program using in-ground storage and financial instruments. The hedging program is further refined to skew the hedging program more heavily toward the winter season (November through March). Niagara Mohawk’s hedging program uses NYMEX gas futures and combinations of call and put options referred to as “collars.” Each NYMEX futures or option contract represents 10,000 Dth of gas. There are no open futures contracts or options at March 31, 2002. At December 31, 2001 there were 306 open futures contracts and no open options.
Hedging activity during 2001 and for the period through March 31, 2002 was as follows:
| Contracts
| Dth
|
Open Contracts at January 1, 2001
| 160
| 1,600,000
|
Contracts Purchased during the year
| 1,479
| 14,790,000
|
Contracts Settled or Expired
| (1,333)
| (13,330,000)
|
Open at December 31, 2001
| 306
| 3,060,000
|
|
|
|
Contracts Purchased first Qtr 2002
| 0
| 0
|
Contracts Settled or Expired
| (306)
| (3,060,000)
|
Open at March 31, 2002
| -
| -
|
|
|
|
The above activity coupled with the in-ground storage hedged approximately 50 percent of Niagara Mohawk’s gas needs for the year. The rest of the gas needs are met through market-based purchases that are subject to price fluctuations, which are mitigated by regulatory rate recovery for the cost of gas purchased.
At March 31, 2002, there were no open gas futures or option positions. In May 2002, Niagara Mohawk began hedging with both futures and options for the period July 2002 through March 2003. At December 31, 2001, the open NYMEX futures had a fair value loss of ($5.5) million. The extent to which market price movement would effect the value of the hedges would be matched by an offsetting change in the anticipated gas purchased costs for the quantity of gas hedged. Therefore, for the quantities hedged, variations in market costs would not result in any significant impact on earnings.
Electricity Price Risk: When Niagara Mohawk has more sales than physical supply contracts, electricity is purchased through the NYISO at market prices. Purchases from the NYISO subject Niagara Mohawk’s ratepayers to price risk unless otherwise covered by a financial swap. During several months of 2001, Niagara Mohawk projected that it would be in a short position for electricity needed to supply customers. For those months, electricity was purchased through the NYISO at market prices. In order to maintain internal limits on exposure to market risks, Niagara Mohawk locked in the price for a portion of this short position through fixed for floating swaps on electricity. During the first three months of 2002 Niagara Mohawk entered into electric swaps for March 2002. Those contracts had all expired by March 31, 2002.
The contracts call for Niagara Mohawk to pay fixed prices for specific quantities of power at various on-peak and off-peak periods during February through July 2001 and during March 2002. The counterparty pays Niagara Mohawk the specific locationally based market price as set by the NYISO for the same quantity of power during the same on or off peak periods. Since Niagara Mohawk is also purchasing power through the NYISO in those same quantities and for the same periods, these swaps are highly effective in achieving offsetting cash flows for the quantity of power hedged. At March 31, 2002 and December 31, 2001, Niagara Mohawk had no open electricity swaps.
Activity in electricity swaps for 2001 and the first quarter of 2002 was as follows:
| Mwh
|
Open swaps at January 1, 2001
| 713,400
|
Swaps Initiated during the year
| 633,650
|
Swaps Settled
| (1,347,050)
|
Open swaps at December 31, 2001
| -
|
|
|
Swaps Initiated during the quarter
| 162,000
|
Swaps Settled during the quarter
| (162,000)
|
Open swaps at March 31, 2002
| -
|
Equity Price Risk. With the sale of the nuclear generating stations on November 7, 2001 and the associated transfer of all decommissioning trust fund assets to the new owners, Niagara Mohawk eliminated its equity price risk.
Foreign Currency Exchange Risk. Niagara Mohawk currently has no foreign currency exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A. FINANCIAL STATEMENTS
- Reports of Independent Accountants
- Consolidated Statements of Operations and Retained Earnings for the 60 day period ended March 31, 2002, the 30 day period ended January 30, 2002 and for each of the three years in the period ended December 31, 2001
- Consolidated Statements of Comprehensive Income (Loss) for the 60 day period ended March 31, 2002, the 30 day period ended January 30, 2002, and for each of the three years in the period ended December 31, 2001
- Consolidated Balance Sheets at March 31, 2002, December 31, 2001 and 2000
- Consolidated Statements of Cash Flows for the 60 day period ended March 31, 2002, the 30 day period ended January 30, 2002 and for each of the three years in the period ended December 31, 2001
- Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Niagara Mohawk Power Corporation:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and retained earnings, of comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Niagara Mohawk Power Corporation and its subsidiaries at March 31, 2002, and the results of their operations and their cash flows for the sixty day period then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 12 to the accompanying consolidated financial statements, the Company restated its consolidated balance sheet as of March 31, 2002 and its consolidated statements of operations and retained earnings and of cash flows for the sixty day period ended March 31, 2002.
s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 14, 2002, except for Notes 12 and 13, which are as of April 7, 2003
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Niagara Mohawk Power Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and retained earnings, of comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Niagara Mohawk Power Corporation and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for the thirty day period ended January 30, 2002 and for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 12 to the accompanying consolidated financial statements, the Company restated its consolidated financial statements as of December 31, 1998 and as of and for each of the three years in the period ended December 31, 2001, as well as the thirty day period ended January 30, 2002.
s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 14, 2002, except for Notes 12 and 13, which are as of April 7, 2003
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
|
| 60 Day Period
|
| 30 Day Period
|
| Three Months
|
|
|
|
|
|
|
|
| Ended March
|
| Ended January
|
| Ended March
|
| For the Year Ended December 31,
|
(in thousands of dollars)
|
| 31, 2002
|
| 30, 2002
|
| 31, 2001
|
| 2001
|
| 2000
|
| 1999
|
|
| (Successor)
|
| (Predecessor)
|
| (Predecessor)
| (Predecessor)
| (Predecessor)
| (Predecessor)
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
|
| Note 12
|
| Note 12
|
| Note 12
|
| Note 12
|
| Note 12
|
| Note 12
|
|
|
|
|
|
| (Unaudited)
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
| $ 539,758
|
| $ 282,931
|
| $ 823,566
|
| $3,393,212
|
| $ 3,207,447
|
| $ 3,247,757
|
Gas
|
| 149,947
|
| 79,691
|
| 356,140
|
| 721,501
|
| 658,502
|
| 579,583
|
|
| 689,705
|
| 362,622
|
| 1,179,706
|
| 4,114,713
|
| 3,865,949
|
| 3,827,340
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity purchased
|
| 231,721
|
| 111,444
|
| 291,053
|
| 1,304,242
|
| 1,144,117
|
| 807,038
|
Fuel for electric generation
|
| -
|
| -
|
| 14,317
|
| 37,162
|
| 74,340
|
| 189,657
|
Gas purchased
|
| 83,477
|
| 46,651
|
| 249,760
|
| 419,324
|
| 357,524
|
| 267,202
|
Other operation and maintenance
|
| 158,367
|
| 116,485
|
| 248,196
|
| 952,853
|
| 888,387
|
| 915,691
|
Disallowed nuclear investment costs
|
| -
|
| -
|
| -
|
| 123,000
|
| -
|
| -
|
Amortization of Stranded Costs
|
| 23,533
|
| 40,911
|
| 91,073
|
| 393,136
|
| 375,487
|
| 363,374
|
Depreciation and amortization
|
| 32,877
|
| 16,671
|
| 77,768
|
| 292,224
|
| 311,803
|
| 344,930
|
Other taxes (Note 1)
|
| 40,892
|
| 20,298
|
| 50,403
|
| 234,346
|
| 283,511
|
| 411,842
|
|
| 570,867
|
| 352,460
|
| 1,022,570
|
| 3,756,287
|
| 3,435,169
|
| 3,299,734
|
Operating income
|
| 118,838
|
| 10,162
|
| 157,136
|
| 358,426
|
| 430,780
|
| 527,606
|
Other income (deductions)
|
| 249
|
| 2,091
|
| (789)
|
| (15,558)
|
| (26,153)
|
| (42,165)
|
Income before interest charges
|
| 119,087
|
| 12,253
|
| 156,347
|
| 342,868
|
| 404,627
|
| 485,441
|
Interest charges
|
| 62,607
|
| 29,416
|
| 105,389
|
| 402,382
|
| 445,842
|
| 492,987
|
Income (loss) before income taxes
|
| 56,480
|
| (17,163)
|
| 50,958
|
| (59,514)
|
| (41,215)
|
| (7,546)
|
Income tax expense (benefit) (Note 1)
|
| 25,834
|
| 3,778
|
| 16,948
|
| (78,872)
|
| (13,569)
|
| 2,115
|
Net income (loss)
|
| 30,646
|
| (20,941)
|
| 34,010
|
| 19,358
|
| (27,646)
|
| (9,661)
|
Dividends on preferred stock
|
| -
|
| 7,611
|
| 7,758
|
| 30,850
|
| 31,437
|
| 36,808
|
Balance available for common stock
|
| 30,646
|
| (28,552)
|
| 26,252
|
| (11,492)
|
| (59,083)
|
| (46,469)
|
Retained earnings at beginning of year
|
| 138,492
|
| 167,044
|
| 215,696
|
| 215,696
|
| 320,911
|
| 575,564
|
Purchase accounting adjustment
|
| (138,492)
|
| -
|
| -
|
| -
|
| -
|
| -
|
Call premium on preferred stock
|
| (1,329)
|
| -
|
| -
|
| -
|
| -
|
| -
|
Dividend of Opinac to Holdings (Note 1)
|
| -
|
| -
|
| -
|
| -
|
| -
|
| 144,465
|
Dividend to Holdings
|
| -
|
| -
|
| -
|
| 37,160
|
| 46,132
|
| 63,719
|
Retained earnings at end of year
|
| $ 29,317
|
| $ 138,492
|
| $ 241,948
|
| $ 167,044
|
| $ 215,696
|
| $ 320,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
| 60 Day Period
|
| 30 Day Period
|
| Three Months
|
|
|
|
|
|
|
|
| Ended March
|
| Ended January
| Ended March
|
| For the year ended December 31,
|
(in thousands of dollars)
|
| 31, 2002
|
| 30, 2002
|
| 31, 2001
|
| 2001
|
| 2000
|
| 1999
|
|
| (Successor)
|
| (Predecessor)
| (Predecessor)
| (Predecessor)
| (Predecessor)
| (Predecessor)
|
|
|
|
|
|
| (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
|
|
|
|
|
| Note 12
|
| Note 12
|
| Note 12
|
| Note 12
|
Net income(loss)
|
| $ 30,646
|
| $ (20,941)
|
| $ 34,010
|
| $ 19,358
|
| $ (27,646)
|
| $ (9,661)
|
Other comprehensive income(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains(losses) on securities (net of taxes
|
|
|
|
|
|
|
|
|
|
|
of $(92), $59, $361, $612, $343, $(60) ,
|
| 126
|
| (81)
|
| (671)
|
| (857)
|
| (657)
|
| 113
|
respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
| -
|
| -
|
| -
|
| -
|
| -
|
| 1,309
|
Hedging activity (net of taxes of $(1,976), $(800),
|
|
|
|
|
|
|
|
|
|
|
$-, $3,790,$-, $- , respectively)
|
| 2,674
|
| 1,084
|
| 3,621
|
| (5,127)
|
| -
|
| -
|
Additional minimum pension liability
|
| -
|
| (23,081)
|
| 267
|
| (4,202)
|
| (1,649)
|
| (5,967)
|
Other comprehensive income (loss)
|
| 2,800
|
| (22,078)
|
| 3,217
|
| (10,186)
|
| (2,306)
|
| (4,545)
|
Comprehensive income(loss)
|
| $ 33,446
|
| $ (43,019)
|
| $ 37,227
|
| $ 9,172
|
| $ (29,952)
|
| $ (14,206)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
|
| March 31,
|
| December 31,
|
|
| 2002
|
| 2001
|
| 2000
|
(in thousands of dollars)
|
| (Successor)
|
| (Predecessor)
|
| (Predecessor)
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
|
| Note 12
|
| Note 12
|
| Note 12
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility plant (Note 1):
|
|
|
|
|
|
|
Electric plant
|
| $ 4,938,709
|
| $ 4,903,758
|
| $ 7,179,329
|
Nuclear fuel
|
| -
|
| -
|
| 672,259
|
Gas plant
|
| 1,352,258
|
| 1,345,785
|
| 1,310,649
|
Common plant
|
| 359,429
|
| 359,634
|
| 349,751
|
Construction work in progress
|
| 180,667
|
| 202,791
|
| 289,634
|
Total utility plant
|
| 6,831,063
|
| 6,811,968
|
| 9,801,622
|
Less-Accumulated depreciation and amortization
|
| 2,226,493
|
| 2,194,273
|
| 4,019,282
|
Net utility plant
|
| 4,604,570
|
| 4,617,695
|
| 5,782,340
|
|
|
|
|
|
|
|
Goodwill (Note 1)
|
| 1,230,763
|
| -
|
| -
|
|
|
|
|
|
|
|
Other property and investments
|
| 95,785
|
| 105,083
|
| 428,515
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
| 9,882
|
| 97,234
|
| 66,124
|
Restricted Cash
|
| 8,082
|
| 28,745
|
| 10,946
|
Accounts receivable (less allowance for doubtful accounts
|
|
|
|
|
|
|
of $61,300, $56,000 and $59,100, respectively) (Notes 1 and 8)
| 534,914
|
| 381,599
|
| 390,452
|
Notes receivable
|
| 50,050
|
| 49,956
|
| -
|
Materials and supplies, at average cost:
|
|
|
|
|
|
|
Gas storage
|
| 3,335
|
| 56,111
|
| 50,947
|
Other
|
| 17,484
|
| 19,482
|
| 93,431
|
Assets from price risk management activities (Note 1)
|
| 411
|
| -
|
| 65,052
|
Prepaid taxes
|
| 17,491
|
| 2,702
|
| -
|
Other
|
| 5,075
|
| 5,530
|
| 21,026
|
|
| 646,724
|
| 641,359
|
| 697,978
|
Regulatory assets (Note 3):
|
|
|
|
|
|
|
Swap contracts regulatory asset
|
| 653,949
|
| 733,487
|
| 778,229
|
Regulatory tax asset
|
| 203,905
|
| 175,158
|
| 403,652
|
Deferred environmental restoration costs (Note 8)
|
| 297,000
|
| 305,000
|
| 285,000
|
Merger rate plan stranded costs
|
| 3,300,885
|
| 4,230,313
|
| 3,568,044
|
Postretirement benefits other than pensions
|
| 40,284
|
| 41,244
|
| 45,084
|
Unamortized debt expense
|
| 40,132
|
| 35,381
|
| 39,823
|
Pension and postretirement benefit plans
|
| 444,369
|
| -
|
| -
|
Other
|
| 231,391
|
| 274,431
|
| 164,424
|
|
| 5,211,915
|
| 5,795,014
|
| 5,284,256
|
Other assets
|
| 62,305
|
| 77,581
|
| 77,235
|
Long term notes receivable
|
| 199,822
|
| 199,822
|
| -
|
|
| $12,051,884
|
| $11,436,554
|
| $ 12,270,324
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
|
| March 31,
|
| December 31,
|
|
| 2002
|
| 2001
|
| 2000
|
(in thousands of dollars)
|
| (Successor)
|
| (Predecessor)
|
| (Predecessor)
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
CAPITALIZATION AND LIABILITIES
|
| Note 12
|
| Note 12
|
| Note 12
|
|
|
|
|
|
|
|
Capitalization (Note 4):
|
|
|
|
|
|
|
Common stockholders' equity
|
|
|
|
|
|
|
Common stock, issued and outstanding 187,364,863 shares
| $ 187,365
|
| $ 187,365
|
| $ 187,365
|
Repurchase of Holdings' common stock, at cost
|
| -
|
| (407,193)
|
| (407,193)
|
Paid-in-surplus
|
| 2,722,894
|
| -
|
| -
|
Capital stock premium and expense
|
| -
|
| 2,363,854
|
| 2,362,404
|
Accumulated other comprehensive income (loss)
|
| 126
|
| (17,645)
|
| (7,459)
|
Retained earnings
|
| 29,317
|
| 167,044
|
| 215,696
|
|
| 2,939,702
|
| 2,293,425
|
| 2,350,813
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
| 100,411
|
| 440,000
|
| 440,000
|
Mandatorily redeemable preferred stock
|
| -
|
| 50,700
|
| 53,750
|
Long-term debt
|
| 4,146,642
|
| 4,407,231
|
| 4,663,381
|
Total capitalization
|
| 7,186,755
|
| 7,191,356
|
| 7,507,944
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Short-term debt (Note 5)
|
| 419,000
|
| -
|
| 110,000
|
Long-term debt due within one year (Note 4)
|
| 544,647
|
| 543,793
|
| 625,079
|
Sinking fund requirements on redeemable preferred stock (Note 4)
| -
|
| 3,050
|
| 7,620
|
Accounts payable
|
| 239,677
|
| 231,925
|
| 432,651
|
Customers' deposits
|
| 18,918
|
| 18,884
|
| 16,900
|
Accrued taxes
|
| -
|
| -
|
| 2,985
|
Accrued interest
|
| 111,515
|
| 82,272
|
| 98,408
|
Liabilities from price risk management activities (Note 1)
|
| -
|
| 12,270
|
| 2,719
|
Deferred gain on futures contracts (Note 1)
|
| -
|
| -
|
| 17,409
|
Other
|
| 124,855
|
| 149,188
|
| 153,927
|
|
| 1,458,612
|
| 1,041,382
|
| 1,467,698
|
|
|
|
|
|
|
|
Regulatory and other liabilities:
|
|
|
|
|
|
|
Accumulated deferred income taxes (Notes 1 and 6)
|
| 1,058,528
|
| 1,400,853
|
| 1,428,786
|
Liability for swap contracts (Note 9)
|
| 653,949
|
| 733,487
|
| 778,229
|
Employee pension and other benefits (Note 7)
|
| 745,393
|
| 271,628
|
| 218,569
|
Deferred gain on swap hedges
|
| -
|
| -
|
| 66,405
|
Other
|
| 651,647
|
| 492,848
|
| 517,693
|
|
| 3,109,517
|
| 2,898,816
|
| 3,009,682
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 2 and 8):
|
|
|
|
|
|
|
Liability for environmental restoration
|
| 297,000
|
| 305,000
|
| 285,000
|
|
|
|
|
|
|
|
|
| $12,051,884
|
| $11,436,554
|
| $ 12,270,324
|
The accompanying notes are an integral part of these financial statements.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 60 Day Period
|
| 30 Day Period
|
| Three months
|
|
|
|
|
|
|
| ended
|
| ended
|
| ended
|
| For the Year ended December 31,
|
| March 31,2002
|
| January 30, 2002
|
| March 31,2001
|
| 2001
|
| 2000
|
| 1999
|
| (Successor)
|
| (Predecessor)
|
| (Predecessor)
|
| (Predecessor)
|
| (Predecessor)
|
| (Predecessor)
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| NOTE 12
|
| NOTE 12
|
| NOTE 12
|
| NOTE 12
|
| NOTE 12
|
| NOTE 12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
|
|
|
| (Unaudited)
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
| $ 30,646
|
| $ (20,941)
|
| $ 34,010
|
| $ 19,358
|
| $ (27,646)
|
| $ (9,661)
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization/accretion of regulatory assets
| 23,533
|
| 40,911
|
| 91,073
|
| 393,136
|
| 375,487
|
| 363,374
|
Depreciation and amortization
| 32,877
|
| 16,671
|
| 77,768
|
| 292,224
|
| 311,803
|
| 344,930
|
Amortization of nuclear fuel
| -
|
| -
|
| 7,203
|
| 23,095
|
| 29,379
|
| 28,285
|
Disallowed nuclear investment costs
| -
|
| -
|
| -
|
| 123,000
|
| -
|
| -
|
Change in restricted cash
| 14,261
|
| 6,402
|
| (205)
|
| (17,798)
|
| (2,268)
|
| 631
|
Provision for deferred income taxes
| 50,814
|
| 3,024
|
| 9,639
|
| (8,774)
|
| (24,614)
|
| (33,409)
|
Reversal of deferred nuclear investment tax credits
| -
|
| -
|
| -
|
| (79,711)
|
| -
|
| -
|
Net accounts receivable (net of changes in accounts
|
|
|
|
|
|
|
|
|
|
|
|
receivable sold)
| (139,062)
|
| (31,677)
|
| (32,079)
|
| 1,153
|
| (54,930)
|
| 84,683
|
Notes receivable
| 7
|
| -
|
| -
|
| -
|
| -
|
| -
|
Materials and supplies
| 30,302
|
| 21,538
|
| 47,114
|
| (8,571)
|
| (10,749)
|
| 23,941
|
Accounts payable and accrued expenses
| (27,981)
|
| 34,261
|
| (138,117)
|
| (198,742)
|
| 169,692
|
| 30,536
|
Accrued interest and taxes
| 28,979
|
| 264
|
| 19,599
|
| (13,943)
|
| 33,800
|
| (48,658)
|
Changes in MRA and IPP buyout costs regulatory assets
| 6,309
|
| 4,105
|
| 11,781
|
| 48,249
|
| 36,132
|
| (193,172)
|
Changes in deferred loss on sale of assets
| (23,533)
|
| (11,200)
|
| -
|
| -
|
| -
|
| -
|
Deferral of MRA interest rate savings
| 2,184
|
| 1,092
|
| 4,229
|
| 15,009
|
| 20,469
|
| 28,006
|
Refundable federal income taxes
| -
|
| -
|
| -
|
| -
|
| -
|
| 130,411
|
Changes in other assets and liabilities
| (53,147)
|
| 39,144
|
| (36,218)
|
| (39,410)
|
| 52,973
|
| 57,288
|
Net cash provided by (used in) operating activities
| (23,811)
|
| 103,594
|
| 95,797
|
| 548,275
|
| 909,528
|
| 807,185
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Construction additions
| (25,126)
|
| (13,459)
|
| (52,535)
|
| (249,430)
|
| (231,892)
|
| (271,973)
|
Nuclear fuel
| -
|
| -
|
| (2,304)
|
| (3,822)
|
| (41,938)
|
| (26,108)
|
Less: Allowance for other funds used during construction
| 167
|
| 136
|
| 798
|
| 2,296
|
| 2,450
|
| 5,366
|
Acquisition of utility plant
| (24,959)
|
| (13,323)
|
| (54,041)
|
| (250,956)
|
| (271,380)
|
| (292,715)
|
Proceeds from the sale of generation assets
| -
|
| -
|
| 83,838
|
| 353,785
|
| 47,500
|
| 860,080
|
Other investments
| (3,176)
|
| 18,368
|
| (16,261)
|
| (33,793)
|
| (71,983)
|
| 42,434
|
Other
| 15,357
|
| (22,839)
|
| 752
|
| (14,368)
|
| 6,713
|
| (20,866)
|
Net cash provided by (used in) investing activities
| (12,778)
|
| (17,794)
|
| 14,288
|
| 54,668
|
| (289,150)
|
| 588,933
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
| -
|
| -
|
| -
|
| 534,152
|
| 260,000
|
| -
|
Proceeds from preferred stock
| -
|
| -
|
| -
|
| -
|
| -
|
| 150,000
|
Reductions of preferred stock
| (390,289)
|
| -
|
| -
|
| (3,050)
|
| (7,620)
|
| (157,620)
|
Reductions in long-term debt
| (131,174)
|
| (1,050)
|
| (226,050)
|
| (916,746)
|
| (653,086)
|
| (1,134,020)
|
Net change in short-term debt
| 419,000
|
| -
|
| 115,000
|
| (110,000)
|
| 110,000
|
| -
|
Corporate restructuring to establish holding company
| -
|
| -
|
| -
|
| -
|
| -
|
| (89,618)
|
Preferred dividends paid
| -
|
| (7,611)
|
| (7,758)
|
| (30,850)
|
| (31,437)
|
| (36,808)
|
Common stock dividend paid to Holdings
| -
|
| -
|
| -
|
| (37,160)
|
| (46,132)
|
| (63,719)
|
Repurchase of Holdings' common stock
| -
|
| -
|
| -
|
| -
|
| (250,026)
|
| (157,167)
|
Other
| (2,391)
|
| (23,048)
|
| 3,558
|
| (8,179)
|
| (1,041)
|
| (7,244)
|
Net cash used in financing activities
| (104,854)
|
| (31,709)
|
| (115,250)
|
| (571,833)
|
| (619,342)
|
| (1,496,196)
|
Net increase (decrease) in cash and cash equivalents
| (141,443)
|
| 54,091
|
| (5,165)
|
| 31,110
|
| 1,036
|
| (100,078)
|
Cash and cash equivalents at beginning of period
| 151,325
|
| 97,234
|
| 66,123
|
| 66,124
|
| 65,088
|
| 165,166
|
Cash and cash equivalents at end of period
| $ 9,882
|
| $ 151,325
|
| $ 60,958
|
| $ 97,234
|
| $ 66,124
|
| $ 65,088
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
| $ 27,245
|
| $ 23,647
|
| $ 70,746
|
| $ 373,100
|
| $ 367,297
|
| $ 512,735
|
Income taxes paid
| $ -
|
| $ -
|
| $ 7
|
| $ 51
|
| $ 14,416
|
| $ (119,999)
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
On March 18, 1999, Niagara Mohawk's outstanding common stock was exchanged on a share-for-share basis
|
|
|
|
|
|
|
for Holdings' common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 31, 1999, Niagara Mohawk distributed the stock of Opinac as a dividend to Holdings, which included
|
|
|
|
|
|
|
cash of $89.6 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 3 for a discussion of not received in connection with sale of nuclear assets, as well as a transfer of an external decommissioning trust fund.
|
|
|
The accompanying notes are an integral part of these financial statements.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HOLDING COMPANY FORMATION: On March 18, 1999, Niagara Mohawk Power Corporation (“Niagara Mohawk”) was reorganized into a holding company structure in accordance with its Agreement and Plan of Exchange between Niagara Mohawk and Niagara Mohawk Holdings, Inc. (“Holdings”). Holdings was incorporated on April 2, 1998 as a wholly-owned subsidiary of Niagara Mohawk. Niagara Mohawk’s outstanding common stock was exchanged on a share-for-share basis for Holdings’ common stock. Niagara Mohawk’s preferred stock and debt were not exchanged as part of the share exchange and continue as obligations of Niagara Mohawk. Upon the share exchange on March 18, 1999, Holdings shares originally issued to Niagara Mohawk were cancelled. The reorganization was accounted for at net book value.
ACQUISITION BY NATIONAL GRID: On January 31, 2002, Niagara Mohawk was acquired by National Grid in a purchase business combination recorded under the “push-down” method of accounting, resulting in a new basis of accounting for the “successor” period beginning January 31, 2002. Information relating to all “predecessor” periods prior to the acquisition is presented using Niagara Mohawk’s historical basis of accounting. Niagara Mohawk will maintain its existing name and will remain a wholly owned subsidiary of Holdings and indirectly, National Grid.
GOODWILL: The acquisition of Niagara Mohawk is being accounted for by the purchase method, the application of which, including the recognition of goodwill, is being recognized on the books of Niagara Mohawk, the most significant subsidiary of Holdings. The merger transaction resulted in approximately $1.2 billion of goodwill, which will be subject to SFAS No. 142, “Goodwill and Other Intangible Assets.” This amount was determined pursuant to a study conducted by an independent third party. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic goodwill impairment tests.
SUBSIDIARIES: On March 31, 1999, Niagara Mohawk distributed its ownership in the stock of Opinac North America, Inc. (“Opinac”) as a dividend to Holdings, which was accounted for using the net book value of Opinac. As a result, the net assets and accumulated other comprehensive income of Opinac are no longer included in Niagara Mohawk’s consolidated balance sheet. The dividend completed the holding company structure, such that Holdings owned 100 percent of the common stock of its two subsidiaries, Niagara Mohawk and Opinac.
BASIS OF PRESENTATION: Niagara Mohawk is subject to regulation by the PSC and FERC with respect to its rates for service under a methodology, which establishes prices, based on Niagara Mohawk’s cost. Niagara Mohawk’s accounting policies conform to GAAP, including the accounting principles for rate-regulated entities with respect to Niagara Mohawk’s nuclear, transmission, distribution and gas operations (regulated business), and are in accordance with the accounting requirements and ratemaking practices of the regulatory authorities.
Niagara Mohawk’s consolidated financial statements include its accounts as well as those of its wholly owned subsidiaries. Inter-company balances and transactions have been eliminated.
The closing of the MRA, which occurred on June 30, 1998, and the implementation of Power Choice on September 1, 1998, have depressed earnings under Power Choice. The closing of the merger with National Grid and the related push down and allocation of the purchase price has had a significant effect on the reported results of Niagara Mohawk. See Note 2 for a discussion of the approved rate plan in connection with the merger. The closing on the sale of the fossil and hydro and nuclear generation assets at various times during 1999 through 2001 has also affected the comparability of the financial statements. See Note 3 for a further discussion of the MRA and the generation asset sales.
The statements of operations, balance sheets and statements of cash flows for Niagara Mohawk reflect the accounting and ratemaking treatment as directed by the PSC as a result of May 2000 New York State tax law changes, whereby a portion of the gross receipts tax has been replaced by a state income tax retroactive to January 1, 2000. The PSC issued an order December 21, 2000 that requires the deferral and pass back of any net tax reduction savings to customers. Accordingly, Niagara Mohawk reduced miscellaneous electric revenues by $31.1 million and miscellaneous gas revenues by $7.3 million for the year ended December 31, 2000 and recorded a corresponding liability to customers of $38.8 million (including $0.4 million in carrying charges), which is reflected in the “Other” current liabilities line item on the balance sheet for the year ended December 31, 2000. Additional carrying charges were accrued in the three months ended March 31, 2002 and the year ended December 31, 2001 in the amount of $0.8 million and $3.7 million, respectively. On October 31, 2001, the PSC directed Niagara Mohawk to pass back $17.7 million of this liability to customers during 2002.
The consolidated statements of cash flows for Niagara Mohawk have been presented to reflect the closings of the sales of the generation assets, such that certain individual line items are net of the effects of the sales.
CHANGE OF FISCAL YEAR: Niagara Mohawk changed its fiscal year from a calendar year ending December 31 to a fiscal year ending March 31. Niagara Mohawk made this change in order to align its fiscal year with that of its new parent company, National Grid. The Company’s first new full fiscal year began on April 1, 2002 and will end on March 31, 2003.
ESTIMATES: In order to conform with GAAP, management is required to use estimates in the preparation of Niagara Mohawk’s financial statements. Actual results could differ from those estimates.
UTILITY PLANT: The cost of additions to utility plant and replacements of retirement units of property are capitalized. Costs include direct material, labor, overhead and AFC. Replacement of minor items of utility plant and the cost of current repairs and maintenance are charged to expense. Whenever utility plant is retired, its original cost, together with the cost of removal, less salvage, is charged to accumulated depreciation.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: Niagara Mohawk capitalizes AFC in amounts equivalent to the cost of funds devoted to plant under construction for its regulated business. AFC rates are determined in accordance with FERC and PSC regulations. The AFC rate in effect at March 31, 2002 was 8.61 percent. AFC is segregated into its two components, borrowed funds and other funds, and is reflected in the “Interest charges” and “Other income” sections, respectively, in Niagara Mohawk’s Consolidated Statements of Operations. The amounts of AFC credits were recorded as follows:
| 60 Day Period
| 30 Day Period
| Three Months
|
|
|
| Ended
| Ended
| Ended
|
|
|
|
| March 31,
| January 30,
| March 31,
| Year Ended December 31,
|
| 2002
| 2002
| 2001
| 2001
| 2000
| 1999
|
| (Successor)
| (Predecessor)
| (Predecessor)
| (Predecessor)
|
|
|
|
| (Unaudited)
|
|
|
|
Other income
| $ 167
| $ 136
| $ 798
| $ 2,296
| $ 2,450
| $ 5,366
|
Interest charges
| 180
| 173
| 906
| 2,728
| 3,161
| 7,252
|
The above amounts include capitalized interest for generation of $0.8 million for 2001 and $1.7 million for 2000 and 1999. There was no capitalized interest for generation in 2002.
DEPRECIATION, AMORTIZATION AND NUCLEAR GENERATION PLANT DECOMMISSIONING COSTS: For accounting and regulatory purposes, Niagara Mohawk’s depreciation is computed on the straight-line basis using the license lives for the nuclear class of depreciable property and the average service lives for all other classes. Niagara Mohawk performs depreciation studies to determine service lives of classes of property and adjusts the depreciation rates when necessary.
The weighted average service life in years for each asset category are presented in the table below:
|
| 60 Day Period
|
| 30 Day Period
|
| Three Months
|
|
|
|
|
|
|
|
| Ended
|
| Ended
|
| Ended
|
|
|
|
|
|
|
|
| March 31,
|
| January 30,
|
| March 31,
|
| Year Ended December 31,
|
|
| 2002
|
| 2002
|
| 2001
|
| 2001
|
| 2000
|
| 1999
|
|
| (Successor)
|
| (Predecessor)
|
| (Predecessor)
|
| (Predecessor)
|
|
|
Asset Category
|
|
|
|
|
| (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
| 34
|
| 33
|
| 34
|
| 26
|
| 28
|
| 28
|
Gas
|
| 41
|
| 40
|
| 41
|
| 43
|
| 40
|
| 41
|
Common
|
| 16
|
| 16
|
| 16
|
| 17
|
| 17
|
| 16
|
REVENUES: Niagara Mohawk bills its customers on a monthly cycle basis at approved tariffs based on energy delivered and a minimum customer service charge. Revenues are determined based on these bills plus an estimate for unbilled energy delivered between the cycle billing date and the end of the accounting period. The unbilled revenues included in accounts receivable at March 31, 2002, December 31, 2001 and 2000 were $131.6 million, $136.6 million and $153.6 million, respectively.
In accordance with Power Choice, Niagara Mohawk recognizes changes in accrued unbilled electric revenues in its results of operations. Pursuant to Niagara Mohawk’s 2000 multi-year gas settlement (ends December 2004), changes in accrued unbilled gas revenues are deferred. At March 31, 2002, December 31, 2001 and 2000, $12.8 million, $11.8 million and $18.9 million, respectively, of unbilled gas revenues remain unrecognized in results of operations. Niagara Mohawk cannot predict when unbilled gas revenues will be allowed to be recorded as revenues.
Prior to September 1, 1998, Niagara Mohawk’s tariffs included an electric fuel adjustment clause, such that electricity costs above or below the levels allowed in approved rate schedules, were billed or credited to customers. Niagara Mohawk, as authorized by the PSC, charged operations for electricity cost variances in the period of recovery. On August 29, 2001, the PSC approved rate plan changes to cover the final two years of the Power Choice agreement. The changes allow for implementation of the Power Choice agreement to pass-through certain commodity-related costs to customers beginning September 1, 2001. At the same time, a transmission revenue adjustment mechanism was implemented which reconciles actual and rate forecast transmission revenues for pass-back to or recovery from customers. The commodity adjustment clause and the transmission revenue adjustment mechanism continues to remain in effect under the merger rate plan that became effective upon the closing of the merger on January 31, 2002.
The PSC approved a multi-year gas rate settlement agreement (ends December 2004) on July 19, 2000 that includes a provision for the continuation of a full gas cost collection mechanism, effective August 1, 2000. This gas cost collection mechanism was originally reinstated in an interim agreement that became effective November 1, 1999. Such gas cost collection mechanism continues under the merger rate plan. The Niagara Mohawk gas cost collection mechanism provides for the collection or pass back of increases or decreases in purchased gas costs.
FEDERAL AND STATE INCOME TAXES: As directed by the PSC, Niagara Mohawk defers any amounts payable pursuant to the alternative minimum tax rules. Deferred investment tax credits are amortized over the useful life of the underlying property. Deferred investment tax credits related to the generation assets that were sold were taken into income in accordance with IRS rules. Holdings and its United States’ subsidiaries file a consolidated federal and state income tax return. Income taxes are allocated to each company based on its taxable income. Regulated federal and state income taxes are recorded under the provisions of SFAS No. 109. As a result of the merger with National Grid on January 31, 2002, Holdings and its United States’ subsidiaries will be filed within National Grid’s consolidated federal tax returns for the periods subsequent to the closing of the merger. Under the National Grid intercompany tax allocation agreement, Holdings and its subsidiaries will be allocated federal tax liability based on their separate company liabilities with adjustment for tax benefits associated with any National Grid holding company losses not attributable to acquisition indebtedness. Holdings and its New York State business subsidiaries will continue to file a combined New York State tax return.
SERVICE COMPANY CHARGES: National Grid USA Service Company, Inc., an affiliated service company operating pursuant to the provisions of Section 13 of the 1935 Act, furnished services to Niagara Mohawk at the cost of such services. These costs amounted to $6.0 million for the 60 day period ended March 31, 2002.
STATEMENTS OF CASH FLOWS: Niagara Mohawk considers all highly liquid investments, purchased with an original maturity of three months or less, to be cash equivalents.
TREASURY STOCK: In 1999 and 2000 Niagara Mohawk repurchased Holdings’ common stock. The cost to acquire Holdings’ common stock by Niagara Mohawk is presented as the “Repurchase of Holdings’ common stock” in Niagara Mohawk’s financial statements.
DERIVATIVES: The FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 137 changed the implementation date for this standard to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No.138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133” which, among other changes, modified the type and number of transactions to which the new standard would need to be applied.
The basic requirements of SFAS No. 133 are that companies identify all derivative instruments in use, record all derivatives on the balance sheet as assets or liabilities measured at fair value, and adjust the fair value at each financial reporting period. Depending on the use of the derivative and its qualification as a hedge, the changes in fair value will either be recorded directly in earnings or deferred and matched with the settlement of the transaction being hedged. Niagara Mohawk’s derivatives are listed on the Consolidated Balance Sheets as “Assets from price risk management activities” and “Liabilities from price risk management activities.” Amounts shown at December 31, 2000 and Niagara Mohawk’s amount for “Deferred gain on futures contracts” and “Deferred gain on swap hedges” represent the accounting treatment under the previous standard, SFAS No. 80, “Accounting for Futures Contracts.”
Niagara Mohawk adopted this standard beginning January 1, 2001. Upon implementation, Niagara Mohawk designated several financial instruments as derivatives and qualified certain of these instruments as hedges. Those derivative instruments that did not qualify for hedge accounting were the result of regulatory rulings and therefore, the earnings impact of the adoption of SFAS No. 133 was offset by regulatory assets or liabilities as directed by SFAS No. 71. The result was no impact on earnings for the adoption of SFAS No. 133 by Niagara Mohawk.
SALE OF CUSTOMER RECEIVABLES: Niagara Mohawk established a single-purpose financing subsidiary, NM Receivables LLC (“NMR”), to purchase and resell a financial interest in a pool of Niagara Mohawk customer receivables. See Note 8 for a complete description of the operations of NMR. Niagara Mohawk adopted SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement 125” in 2001. Niagara Mohawk’s program for selling its accounts receivable meets the requirements outlined in SFAS No. 140 for recognition and accounting as a sale transaction. As a result, the adoption of this new standard did not have an impact on the reported financial information of Niagara Mohawk.
NEW ACCOUNTING STANDARDS: In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations initiated or acquired after June 30, 2001 be accounted for under the purchase method. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill’s impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. Niagara Mohawk adopted SFAS No. 142 on January 1, 2002. Prior to the merger with National Grid on January 31, 2002, Niagara Mohawk did not have any goodwill recorded on its books. Niagara Mohawk will be required to review the goodwill of approximately $1.146 billion for impairment at least annually. Niagara Mohawk performed a comprehensive impairment test at March 31, 2002. As a result of such analysis, it was determined there was no impairment of goodwill at that date.
In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 defines a legal obligation as an obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. The provisions of SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. Niagara Mohawk is currently evaluating the effect of this statement on Niagara Mohawk’s results of operations and financial position.
On January 1, 2002, Niagara Mohawk adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations - Reporting the Effects of Disposal of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” related to the disposal of a segment of a business. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and resolves significant implementation issues related to SFAS No. 121. The adoption of SFAS No. 144 had no material impact on Niagara Mohawk’s financial position and results of operations.
In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statement Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This statement updates, clarifies and simplifies existing accounting pronouncements. Some of the provisions of this pronouncement are effective for specific transactions occurring after May 15, 2002, with full implementation for financial statements issued after May 15, 2002. Niagara Mohawk has applied this standard to prior years’ restatements. See Note 13.
COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) is the change in the equity of a company, not including those changes that result from shareholder transactions. While the primary component of comprehensive income (loss) is reported net income or loss, the other components of comprehensive income (loss) relate to additional minimum pension liability recognition, deferred gains and losses associated with hedging activity and unrealized gains and losses associated with certain investments held as available for sale.
POWER PURCHASE AGREEMENTS: Niagara Mohawk accounts for its power purchase agreements as executory contracts. Niagara Mohawk assesses several factors in determining how to account for its power purchase contracts. These factors include:
- the term of the contract compared to the economic useful life of the facility generating the electricity;
- the involvement, if any, that Niagara Mohawk has in operating the facility;
- the amount of any fixed payments Niagara Mohawk must make, even if the facility does not generate electricity; and
- the level of control Niagara Mohawk has over the amount of electricity generated by the facility, and who bears the risk in the event the facility is unable to generate.
RECLASSIFICATIONS: Certain amounts from prior years have been reclassified on the accompanying Consolidated Financial Statements to conform with the 2002 presentation. In this regard, net cash provided by operating activities has been increased by approximately $400 million and net cash provided by investing activities has been reduced by an equivalent amount for the year ended December 31, 2001. See Note 3 for a discussion of note received in connection with sale of nuclear assets, as well as a transfer of external decommissioning trust fund.
NOTE 2. MERGER WITH NATIONAL GRID
On January 31, 2002, the acquisition of Holdings by National Grid was completed for a consideration of approximately $3.0 billion in cash and American Depositary Shares. The acquisition is being accounted for by the purchase method, the application of which, including the recognition of goodwill, is being recorded on the books of Niagara Mohawk, the most significant subsidiary of Holdings.
The application of the purchase accounting and implementation of the Merger Rate Plan results in substantial changes to Niagara Mohawk’s balance sheet, principally in the recording of goodwill, the write-down of regulatory assets, and the increase in Niagara Mohawk’s capital structure.
The purchase accounting method requires Niagara Mohawk to revalue its assets and liabilities at their fair value. This revaluation resulted in an increase to Niagara Mohawk’s pension and postretirement benefit plan liabilities in the amount of approximately $444.4 million, with a corresponding offsetting increase to a regulatory asset account. See Note 7.
NOTE 3. RATE AND REGULATORY ISSUES AND CONTINGENCIES
Niagara Mohawk’s financial statements conform to GAAP, including the accounting principles for rate-regulated entities with respect to its regulated operations. Niagara Mohawk discontinued application of regulatory accounting principles to its fossil and hydro generation business as of December 31, 1996. Substantively, SFAS No. 71 permits a public utility, regulated on a cost-of-service basis, to defer certain costs, which would otherwise be charged to expense, when authorized to do so by the regulator. These deferred costs are known as regulatory assets, which in the case of Niagara Mohawk, are approximately $5.2 billion at March 31, 2002. These regulatory assets are probable of recovery under Niagara Mohawk’s Power Choice and Gas Multi-Year Rate and Restructuring Agreement. See Note 2 for a further discussion of the impact of the Merger Rate Plan on the regulatory assets.
MERGER RATE PLAN STRANDED COSTS: Under the Merger Rate Plan, a regulatory asset was established that included the costs of the MRA, the cost of any additional IPP contract buyouts and the deferred loss on the sale of the generation assets. The MRA represents the cost to terminate, restate, or amend IPP Party contracts. Niagara Mohawk is also permitted to defer and amortize the cost of any additional IPP contract buyouts. Through March 31, 2002, there have been 13 IPP contracts for approximately 161 MW terminated for a total consideration (cash and/or notes) of $242.1 million. Beginning January 31, 2002, the merger rate plan stranded costs regulatory asset is being amortized unevenly over ten years with larger amounts being amortized in the latter years. Niagara Mohawk’s rates under the merger rate plan have been designed to permit recovery of and a return on the MRA regulatory asset, IPP contract buyouts and the deferred loss on the sale of generation assets.
Power Choice, the rate plan in effect prior to the merger, required Niagara Mohawk to divest its portfolio of fossil and hydro generation assets. During 1999, Niagara Mohawk completed the sale of its hydroelectric generation plants, its coal-fired generation plants and its Oswego oil and gas-fired plant for $860 million. These assets had a combined net book value of approximately $957 million (including materials, supplies and fuel) at the time of their sale. In addition, there were purchase price adjustments of approximately $27 million, primarily due to a lower amount of fuel being transferred to the new owners of the Oswego generation assets than originally anticipated and provided for in the sales agreement.
On May 12, 2000, Niagara Mohawk completed the sale of its Albany oil and gas-fired plant to PSEG Power LLC (“PSEG”) for $47.5 million. The Albany plant had a net book value of approximately $36.4 million (including materials, supplies and fuel) at the time of the sale. There may also be future receipts or payments relating to redevelopment of the facility and the level of property taxes, which would adjust stranded costs to be recovered from customers.
On January 30, 2001, Niagara Mohawk sold its 25 percent interest in the Roseton Steam Station to Dynegy Inc. (“Dynegy”), pursuant to which Niagara Mohawk received approximately $83.9 million. Niagara Mohawk’s share of the plant had a net book value of approximately $38.3 million (which includes materials, supplies and fuel) as of the closing. The gains from the sale of the Albany plant and the Roseton Steam Station were used to partially offset the losses from the sale of the coal-fired generation assets and the hydroelectric generation plants.
The Power Choice agreement provided for deferral and future recovery of net losses resulting from the sale of the fossil and hydro generation asset portfolio. As of January 31, 2002, Niagara Mohawk has recorded a regulatory asset of $118.7 million for the net loss on the sale of its fossil and hydro generation assets. The net loss is included in Niagara Mohawk’s balance sheet as “Merger rate plan stranded costs.” In accordance with Power Choice, Niagara Mohawk did not earn a return on the deferred loss related to the sale of the fossil and hydro assets during Power Choice.
On November 7, 2001, Niagara Mohawk sold its nuclear assets to Constellation pursuant to which Niagara Mohawk received approximately $271 million in cash and would receive five annual principal and interest payments totaling $332 million. The current portion of the Notes Receivable from Constellation is approximately $50.0 million and is reflected in Current Assets at March 31, 2002 and December 31, 2001, respectively. The non-current portion of the Notes Receivable is approximately $199.8 million and is reflected in the “Other Assets” line item of the Consolidated Balance Sheets at March 31, 2002 and December 31, 2001, respectively. On April 12, 2002, Niagara Mohawk received full payment on the note from Constellation of $261.5 million in cash, which represented a principal ($249.8 million) and interest payment ($11.7 million) on the note. Niagara Mohawk’s share of the plant had a net book value (which includes materials, supplies and fuel) of approximately $1.6 billion as of the closing, excluding the reserve for decommissioning costs recovered in rates that was reflected in “Accumulated depreciation and amortization” on the balance sheet of $457.4 million. In addition, Niagara Mohawk transferred its external decommissioning trust fund of $357.1 million to Constellation. Pursuant to the PSC Order approving the sale, dated October 24, 2001, Niagara Mohawk was required to write-off $123 million of its nuclear investment.
The nuclear stranded costs that remained after writing off $123 million of nuclear investment as a result of the sale of the nuclear assets as provided for in the nuclear settlement agreement is reflected in the “Merger rate plan stranded asset costs” account. In addition, the net regulatory assets of approximately $125.3 million were reclassified into the “Merger rate plan stranded asset costs” account. The amount of the loss is subject to change as a result of post closing adjustments on the sales, transaction costs, subsequent costs associated with contract clauses, the amount of severance and other costs, and PSC review of the amounts deferred. Niagara Mohawk began to amortize the regulatory asset related to the loss on the sale of the nuclear assets, which is reflected in the “Amortization of stranded costs” line item of the Consolidated Income Statements, leaving a nuclear stranded cost balance of $1,072.3 million at January 31, 2002. As provided in the Merger Rate Plan, upon the closing of the Merger, Niagara Mohawk was required to write off $875.0 million in nuclear-related costs that otherwise would have been collected in rates. The remaining stranded costs related to the sale of all of the generation assets will be amortized over ten years based on a pattern established in the Merger Rate Plan.
The amortization of the merger rate plan stranded asset costs is reflected in the “Amortization of stranded costs” line item of the Consolidated Income Statements.
Niagara Mohawk has recorded a non-cash incentive as provided for in Power Choice of $18.6 million based on the asset sales of which $9.0 million is reflected in income in 1999, $2.8 million is reflected in income in 2000 and $6.8 million is reflected in income in 2001 in the “Other income (deductions)” line item of the Consolidated Income Statements. The incentive earned reflects PSC Staff recommended adjustments based on their review to date and is included in the other regulatory assets on the Consolidated Balance Sheets.
SWAP CONTRACTS REGULATORY ASSET: The swap contract regulatory asset represents the expected future recovery of the swap contract liabilities. The swap contract liabilities are the present value of the forecasted over-market payments in the restated PPA contracts and the financial swaps associated with the sale of various generation plants. The regulatory asset associated with the restated IPP contracts will amortize over ten years ending in June 2008 as notional quantities are settled. The part of this regulatory asset associated with the generating plants will be amortized over the remaining terms of these contracts ending September 30, 2003. See Note 8 and Note 9 for a further discussion of the several PPAs and other financial agreements that Niagara Mohawk has entered into as part of the MRA and the sale of its generation assets. The amount of this regulatory asset will fluctuate as estimates of future market and contract prices change over the terms of the contracts and will decline as the remaining contract periods shorten. Payments under these arrangements are included in the “Electricity Purchased” line item in the Consolidated Statements of Income and Retained Earnings.
DEFERRED ENVIRONMENTAL RESTORATION COSTS: The deferred environmental restoration costs regulatory asset represents Niagara Mohawk’s share of the estimated costs to investigate and perform certain remediation activities at both Niagara Mohawk-owned sites and non-owned sites with which it may be associated. Niagara Mohawk has recorded a regulatory asset representing the remediation obligations to be recovered from ratepayers. Power Choice and Niagara Mohawk’s gas rates decisions provide for specific rate allowances, with variances deferred for future recovery or pass-back to customers. Niagara Mohawk believes future costs, beyond the settlement periods, will continue to be recovered in rates.
REGULATORY TAX ASSET: The regulatory tax asset represents the expected future recovery from ratepayers of the tax consequences of temporary differences between the recorded book bases and the tax bases of assets and liabilities. This amount is primarily timing differences related to depreciation. These amounts are recovered and amortized as the related temporary differences reverse. The PSC required adoption of SFAS No. 109 on a revenue-neutral basis. The regulatory tax asset decreased by $228.5 million in 2001 primarily due to the reclassification of the SFAS No. 109 nuclear regulatory asset to the deferred loss on the sale of the assets.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The postretirement benefits other than pensions regulatory asset represents the excess of such costs recognized in accordance with SFAS No. 106 over the amount received in rates. In accordance with a PSC policy statement, postretirement benefit costs other than pensions were phased into rates generally over a five-year period and amounts deferred are being amortized and recovered over a period of approximately 15 years.
UNAMORTIZED DEBT EXPENSE: The unamortized debt expense regulatory asset represents the costs to issue and redeem certain long-term debt securities, which were retired prior to maturity. These amounts are amortized as interest expense ratably over the lives of the related issues in accordance with PSC directives.
PENSION AND POSTRETIREMENT BENEFIT PLANS: The pension and postretirement benefit plans regulatory asset represents the revaluation of such an asset at fair value as required by the purchase accounting method. This revaluation resulted in an increase to this regulatory asset in the amount of approximately $444.4 million. See Note 7 for further information.
OTHER: Included in the other regulatory asset is the accumulation of numerous miscellaneous regulatory deferrals, uncollectible accounts receivable, income earned on gas rate sharing mechanisms, the incentive earned on the sale of the fossil and hydro generation assets and certain NYISO costs that were deferred for future recovery.
SFAS NO. 71 AND OTHER ACCOUNTING MATTERS: The Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on Issue No. 97-4, “Deregulation of the Pricing of Electricity - Issues Related to the Application of SFAS No. 71” and SFAS No. 101,” “Regulated Enterprises - Accounting for the Discontinuance of Application of FASB Statement No. 71” in 1997. EITF 97-4 does not require a company to earn a return on regulatory assets that arise from a deregulating transition plan in assessing the applicability of SFAS No. 71. Niagara Mohawk believes that the regulated cash flows to be derived from prices it will charge for electric service in the future, including the CTC and assuming no unforeseen reduction in demand or bypass of the CTC or exit fees, will be sufficient to recover the MRA regulatory asset over its planned amortization period and to provide recovery of and a return on the remainder of its assets, as appropriate. Under the Merger Rate Plan, Niagara Mohawk will earn a return on all of its regulatory assets. In the event Niagara Mohawk determines, as a result of lower than expected revenues and/or higher than expected costs, that its net regulatory assets are not probable of recovery, it can no longer apply the principles of SFAS No. 71 and would be required to record an after-tax, non-cash charge against income for any remaining unamortized regulatory assets and liabilities. If Niagara Mohawk could no longer apply SFAS No. 71, the resulting charge would be material to Niagara Mohawk’s reported financial condition and results of operations and adversely affect Niagara Mohawk’s ability to pay dividends.
Under the Merger Rate Plan, Niagara Mohawk’s remaining electric business (electric transmission and distribution business) continues to be rate-regulated on a cost-of-service basis and, accordingly, Niagara Mohawk continues to apply SFAS No. 71 to these businesses. Also, Niagara Mohawk’s IPP contracts, including those restructured under the MRA, as well as the PPAs entered into in connection with the generation divestiture, continue to be the obligations of the regulated business.
NOTE 4. CAPITALIZATION
Niagara Mohawk is authorized to issue 250,000,000 shares of common stock, $1 par value; 3,400,000 shares of preferred stock, $100 par value; 19,600,000 shares of preferred stock, $25 par value; and 8,000,000 shares of preference stock, $25 par value. The table below summarizes changes in the capital stock issued and outstanding and the related capital accounts for 1999, 2000, 2001 and the three months ended March 31, 2002:
|
| Preferred Stock
|
|
|
|
|
| Common Stock
$1 Par Value
|
$100 Par Value
|
$25 Par Value
| Capital Stock Premium and Expense (Net)*
|
Paid-In Surplus
| Accumulated Other Comprehensive Income (Loss)*
| Repurchased Holdings’ Common Stock*
|
|
Shares
|
Amount*
|
Shares
| Non-
Redeemable*
|
Redeemable*
|
Shares
| Non-
Redeemable*
|
Redeemable*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 1998 | 187,364,863
| $187,365
| 2,304,000
| $210,000
| (a) $20,400
| 11,448,403
| $230,000
| (a) $56,210
| $2,362,531
|
| ($25,794)
|
|
Issued
|
|
|
|
|
| (b) 3,000,000
| 150,000
|
| (1,479)
|
|
|
|
Redemptions
|
|
| (18,000)
| -
| (1,800)
| (b) (6,232,801)
| (150,000)
| (5,820)
| 87
|
|
|
|
Repurchased Holdings’
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
(157,167)
|
Dividend of Opinac
|
|
|
|
|
|
|
|
|
|
| (c) 25,186
|
|
Other comprehensive
income adjustments
|
|
|
|
|
|
|
|
|
|
|
(4,545)
|
|
December 31, 1999 | 187,364,863
| $187,365
| 2,286,000
| $210,000
| (a) $18,600
| 8,215,602
| $230,000
| (a) $50,390
| $2,361,139
| -
| ($5,153)
| (157,167)
|
Amortization (d)
|
|
|
|
|
|
|
|
| 1,178
|
|
|
|
Redemptions
|
|
| (18,000)
|
| (1,800)
| (232,801)
|
| (5,820)
| 87
|
|
|
|
Repurchased Holdings’
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
(250,026)
|
Other comprehensive
income adjustments
|
|
|
|
|
|
|
|
|
|
|
(2,306)
|
|
December 31, 2000 | 187,364,863
| $187,365
| 2,268,000
| $210,000
| (a) $16,800
| 7,982,801
| $230,000
| (a) $44,570
| $2,362,404
| -
| ($7,459)
| ($407,193)
|
Amortization (d)
|
|
|
|
|
|
|
|
| 1,363
|
|
|
|
Redemptions
|
|
| (18,000)
|
| (1,800)
| (232,801)
|
| (5,820)
| 87
|
|
|
|
Other comprehensive
income adjustments
|
|
|
|
|
|
|
|
|
|
|
(10,186)
|
|
December 31, 2001 | 187,364,863
| $187,365
| 2,250,000
| $210,000
| (a) $15,000
| 7,750,000
| $230,000
| (a) $38,750
| $2,363,854
| $ -
| (17,645)
| ($407,193)
|
Amortization (d)
|
|
|
|
|
|
|
|
| 114
|
|
|
|
Redemptions
|
|
| (1,802,445)
| (165,244)
| (15,000)
| (6,636,900)
| (174,345)
| (38,750)
|
|
|
|
|
Purchase accounting
adjustments
|
|
|
|
|
|
|
|
|
(2,363,968)
|
2,711,427
|
37,049
|
407,193
|
Gain on repurchase of
preferred stock
|
|
|
|
|
|
|
|
|
| 11,467
|
|
|
Other comprehensive
income adjustments
|
|
|
|
|
|
|
|
|
|
|
(19,278)
|
|
March 31, 2002 | 187,364,863
| $187,365
| 447,555
| $44,756
| $ -
| 1,113,100
| $55,655
| $ -
| $ -
| $2,722,894
| $126
| $ -
|
* In thousands of dollars
(a) Includes sinking fund requirements due within one year.
(b) The fixed-adjustable rate preferred stock issued during 1999 has a $25 par value with a $50 liquidation preference.
(c) On March 31, 1999, Niagara Mohawk distributed its ownership interest in the stock of Opinac as a dividend to Holdings. As a result, the accumulated other comprehensive income of Opinac of $25.2 million, which is entirely made up of foreign currency translation adjustment, is no longer included in Niagara Mohawk’s “Accumulated Other Comprehensive Income (Loss).” (See Note 1)
(d) Pursuant to a 1999 PSC rate order, Niagara Mohawk is amortizing the capital stock expense of the Adjustable Rate Series D preferred stock over five years (ends in 2004).
The components of other comprehensive income (loss) include the cumulative amount of unrealized loss on securities of $126,000. Included in Accumulated Other Comprehensive Income (Loss) are the following amounts from the activity of cash flow hedges for the year ended December 31, 2001 and the three months ended March 31, 2002.
The purchase accounting method was used to account for the acquisition of Holdings by National Grid, which resulted in a purchase accounting adjustment of $138.5 million to Niagara Mohawk’s retained earnings. This also resulted in a reduction to the premium on capital stock of $2,364.0 million, a reduction in the repurchase of Holdings’ common stock of $407.2 million and an increase of $2,711.4 million in other paid-in-capital.
At March 31, 2002, there were no open positions in instruments qualifying for hedge accounting.
(in thousands of dollars)
|
| Gas Supply
|
| Electric Supply
|
| Total
|
Derivatives designated as cash flow hedges
|
|
|
|
|
|
|
at January 1, 2001
|
| $ (12,967)
|
| $ (4,442)
|
| $ (17,409)
|
Changes in fair value recognized in 2001
|
| 29,342
|
| (1,469)
|
| 27,873
|
Reclassifications to expense
|
| (7,458)
|
| 5,911
|
| (1,547)
|
|
|
|
|
|
|
|
Total hedging activity included in Accumulated other
|
|
|
|
|
|
|
comprehensive income at December 31, 2001
|
| 8,917
|
| -
|
| 8,917
|
Changes in fair value recognized in 2002
|
| 1,281
|
| 411
|
| 1,692
|
Reclassifications to expense
|
| (10,198)
|
| (411)
|
| (10,609)
|
|
|
|
|
|
|
|
Total hedging activity included in Accumulated other
|
|
|
|
|
|
|
comprehensive income at March 31, 2002
|
| $ -
|
| $ -
|
| $ -
|
Purchase of Holdings’ Common Stock - Niagara Mohawk purchased 10 million shares of Holdings’ common stock through December 31, 1999 for $157.2 million.
Niagara Mohawk purchased 17,125,045 additional shares for approximately $250 million in 2000. Niagara Mohawk has suspended the program to repurchase Holdings’ common stock as a result of the merger (See Note 2).
NIAGARA MOHAWK NON-REDEEMABLE PREFERRED STOCK
Niagara Mohawk had certain issues of preferred stock, which provide for redemption at the option of Niagara Mohawk, as shown in the table below. In March 2002, Niagara Mohawk redeemed a number of shares of several series of preferred stock pursuant to a cash tender offer that commenced in February 2002.
|
|
|
| In thousands of dollars
| Redemption price
|
| Shares
|
|
|
|
| per share
|
| March 31,
| December 31,
| March 31,
| December 31,
| (Before adding
|
Series
| 2002
| 2001
| 2002
| 2001
|
| 2000
| accumulated dividends)
|
Preferred $100 par value:
|
| (Successor)
| (Predecessor)
|
|
|
|
|
|
|
|
|
|
3.40%
| 64,402
| 200,000
| $ 6,440
| $ 20,000
|
| $ 20,000
| $103.50
|
3.60%
| 143,018
| 350,000
| 14,302
| 35,000
|
| 35,000
| 104.85
|
3.90%
| 102,138
| 240,000
| 10,214
| 24,000
|
| 24,000
| 106.00
|
4.10%
| 60,721
| 210,000
| 6,072
| 21,000
|
| 21,000
| 102.00
|
4.85%
| 40,355
| 250,000
| 4,036
| 25,000
|
| 25,000
| 102.00
|
5.25%
| 36,921
| 200,000
| 3,692
| 20,000
|
| 20,000
| 102.00
|
6.10%
| -
| 250,000
| -
| 25,000
|
| 25,000
| N/A
|
7.72%
| -
| 400,000
| -
| 40,000
|
| 40,000
| N/A
|
|
|
|
|
|
|
|
|
Preferred $25 par value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable Rate -
|
|
|
|
|
|
|
Series A
| -
| 1,200,000
| -
| 30,000
|
| 30,000
| N/A
|
Series C
| -
| 2,000,000
| -
| 50,000
|
| 50,000
| N/A
|
Series D
| 1,113,100
| 3,000,000
| 55,655
| 150,000
|
| 150,000
| 50.00 *
|
|
|
|
|
|
|
|
|
|
|
| $ 100,411
| $ 440,000
|
| $ 440,000
|
|
|
|
|
|
|
|
|
|
* Not redeemable prior to December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A = not applicable
|
|
|
|
|
|
|
NIAGARA MOHAWK MANDATORILY REDEEMABLE PREFERRED STOCK
Niagara Mohawk redeemed all of its mandatorily redeemable preferred stock in March 2002. Prior to such redemption, these series required mandatory sinking funds for annual redemption.
|
|
|
| Shares
|
|
| In thousands of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31,
|
| December 31,
|
| March 31,
|
| December 31,
|
Series
| 2002
|
| 2001
|
| 2000
|
| 2002
|
| 2001
|
| 2000
|
Preferred $100 par value:
| (Successor)
|
| (Predecessor)
|
|
| (Successor)
|
| (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
7.45%
| -
|
| 150,000
|
| 168,000
|
| $ -
|
| $ 15,000
|
| $ 16,800
|
Preferred $25 par value:
|
|
|
|
|
|
|
|
|
|
|
|
7.85%
| -
|
| -
|
| 182,801
|
| -
|
| -
|
| 4,570
|
Adjustable Rate -
|
|
|
|
|
|
|
|
|
|
|
|
Series B
| -
|
| 1,550,000
|
| 1,600,000
|
| -
|
| 38,750
|
| 40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| -
|
| 53,750
|
| 61,370
|
Less sinking fund requirements
|
|
|
|
|
| -
|
| 3,050
|
| 7,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ -
|
| $ 50,700
|
| $ 53,750
|
NIAGARA MOHAWK LONG-TERM DEBT
Long-term debt consisted of the following:
| Shares
|
| In thousands of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31,
|
| December 31,
|
| March 31,
|
| December 31,
|
Series
| 2002
|
| 2001
|
| 2000
|
| 2002
|
| 2001
|
| 2000
|
Preferred $100 par value:
| (Successor)
|
| (Predecessor)
|
|
| (Successor)
|
| (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
7.45%
| -
|
| 150,000
|
| 168,000
|
| $ -
|
| $ 15,000
|
| $ 16,800
|
Preferred $25 par value:
|
|
|
|
|
|
|
|
|
|
|
|
7.85%
| -
|
| -
|
| 182,801
|
| -
|
| -
|
| 4,570
|
Adjustable Rate -
|
|
|
|
|
|
|
|
|
|
|
|
Series B
| -
|
| 1,550,000
|
| 1,600,000
|
| -
|
| 38,750
|
| 40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| -
|
| 53,750
|
| 61,370
|
Less sinking fund requirements
|
|
|
|
|
| -
|
| 3,050
|
| 7,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ -
|
| $ 50,700
|
| $ 53,750
|
* Tax-exempt pollution control related issues
Niagara Mohawk’s long-term debt increased significantly upon the closing of the MRA on June 30, 1998. The MRA was primarily financed through the Senior Notes.
As of March 31, 2002, Niagara Mohawk has received $1,261.4 million in cash proceeds on the sale of its generation assets. During 1999 through the three months ended March 31, 2002, Niagara Mohawk’s net reduction in long-term debt was approximately $2.0 billion using the proceeds from the assets sales and from improved cash flow. In April 2002, Niagara Mohawk received $261.5 million in cash from Constellation, since Constellation elected to prepay the remaining amount it owed Niagara Mohawk related to the sale of the nuclear assets. Niagara Mohawk will be obligated to use 85 percent of the $261.5 million cash proceeds from Constellation to reduce its senior debt outstanding within 180 days after the receipt of such proceeds.
Several series of First Mortgage Bonds and Promissory Notes were issued to secure a like amount of tax-exempt revenue bonds issued by NYSERDA. Approximately $414 million of such securities bear interest at a daily adjustable interest rate (with an option to convert to other rates, including a fixed interest rate which would require Niagara Mohawk to issue First Mortgage Bonds to secure the debt) which averaged 1.12 percent for the three months ended March 31, 2002, 2.50 percent for 2001, 4.06 percent for 2000 and 3.23 percent for 1999 and are supported by bank direct pay letters of credit. Pursuant to agreements between NYSERDA and Niagara Mohawk, proceeds from such issues were used for the purpose of financing the construction of certain pollution control facilities at Niagara Mohawk’s generation facilities or to refund outstanding tax-exempt bonds and notes (see Note 5).
Other long-term debt in the three months ended March 31, 2002 consists of a liability for IPP contract restructurings not related to the MRA of approximately $16.2 million and promissory notes to the co-tenants of Unit 2 related to the sale of the nuclear assets of $4.2 million. Other long-term debt decreased approximately $154.9 million in the three months ended March 31, 2002, primarily as a result of the reclassification of the nuclear fuel disposal liability of $139.1 million from “Long-term debt” to the “Other Regulatory and other liabilities” line item of the Consolidated Balance Sheets. Such reclassification reflects management’s belief that subsequent to the merger with National Grid, it will not have to incur long-term debt in order to relieve its obligations related to the nuclear fuel disposal liability. The aggregate maturities of long-term debt for the five years subsequent to December 31, 2001, excluding capital leases, in millions, are approximately $543.8, $611.8, $533.0, $550.6 and $275.0, respectively. The current portion of capital lease obligations are reflected in the other current liabilities line item on the Consolidated Balance Sheet and was approximately $3.4 million, $3.1 million and $3.2 million at March 31, 2002, December 31, 2001 and December 31, 2000, respectively. The non-current portion of capital lease obligations are reflected in the other regulatory and other liabilities line item on the Consolidated Balance Sheet and was approximately $7.3 million, $12.6 million and $15.6 million at March 31, 2002, December 31, 2001 and December 31, 2000, respectively. Niagara Mohawk retained the liability to the DOE for nuclear fuel disposal as part of the sale of the nuclear assets. See Note 8 for a further discussion of the nuclear fuel disposal liability to the DOE.
EARLY EXTINGUISHMENT OF DEBT
During the three months ended March 31, 2002, and the year ended December 31, 2000 and 1999, Niagara Mohawk defeased or redeemed approximately $119 million, $95 million and $822 million, respectively, in long-term debt prior to its scheduled maturity. Niagara Mohawk charged to earnings approximately $0.9 million and $23.8 million, after tax, for the year ended December 31, 2000 and 1999, respectively, for redemption premiums incurred and unamortized debt expense and issuance costs.
During March 2002, Niagara Mohawk defeased its 8 3/4 percent First Mortgage Bonds due 2022. Provisions for the payment of these bonds were made by depositing with trustees approximately an amount sufficient to pay principal ($119 million), interest ($5.2 million), and premium ($4.8 million), as applicable, to the maturity date, or to the first date on which these bonds could be redeemed. The defeased bonds were removed from the balance sheet effective March 31, 2002. Niagara Mohawk deferred the costs associated with the $119 million early redemption of long-term debt. Such costs were scheduled to be amortized over the remaining life of the debt issuance until 2022. During April 2002, these bonds were called.
NOTE 5. BANK CREDIT ARRANGEMENTS
Niagara Mohawk has a senior bank facility agreement that provides Niagara Mohawk with $524 million of credit consisting of a five-year $100 million revolving credit facility (expires May 31, 2005) and $424 million for letters of credit with a three-year term (expires June 2, 2003). The letter of credit facility provides credit support for Niagara Mohawk’s adjustable rate pollution control revenue bonds issued through the New York State Energy Research and Development Authority, discussed in Note 4. Prior to its cancellation in April 2002, the senior bank facility also included a 364 day revolving credit facility of $322.9 million. As of March 31, 2002, Niagara Mohawk has no loans outstanding under the revolving credit facilities.
Niagara Mohawk had short-term debt of $419 million outstanding at March 31, 2002, which included $343 million of borrowings from other National Grid USA companies through the money pool and $76 million of borrowings from Holdings. The interest rate approximated 1.8 percent at March 31, 2002. The short-term debt was used to redeem $390.3 million of preferred stock and the early redemption of $119.0 million of first mortgage bonds.
Niagara Mohawk had short-term debt of $110 million outstanding at December 31, 2000 and no short-term debt outstanding at December 31, 2001. The interest rate applicable to the facility is variable based on certain rate options available under the agreement and approximated 7.8 percent at December 31, 2000.
NOTE 6. FEDERAL, STATE AND FOREIGN INCOME TAXES
Following is a summary of the components of federal and state income tax and a reconciliation between the amount of federal income tax expense reported in the Consolidated Statements of Income and the computed amount at the statutory tax rate:
| 60 Day Period
|
| 30 Day Period
|
| Three Months
|
|
|
|
|
|
|
| Ended
|
| Ended
|
| Ended
|
|
|
|
|
|
|
| March 31,
|
| January 30,
|
| March 31,
|
| Year Ended December 31,
|
|
|
|
| 2002
|
| 2002
|
| 2001
|
| 2001
|
| 2000
|
| 1999
|
In thousands of dollars
|
|
|
|
| (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| (Sucessor)
|
| (Predecessor)
|
| (Predecessor)
| (Predecessor)
|
| (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of federal, state and
|
|
|
|
|
|
|
|
|
|
|
foreign income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
Federal
| $ (1,672)
|
| $ 10,395
|
| $ 6,519
|
| $ 3,637
|
| $ 17,908
|
| $ 12,586
|
State (a)
| (6,698)
|
| 357
|
| 430
|
| 386
|
| 468
|
| 143
|
| (8,370)
|
| 10,752
|
| 6,949
|
| 4,023
|
| 18,376
|
| 12,729
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
Federal
| 24,106
|
| (6,194)
|
| 11,108
|
| (84,073)
|
| (26,523)
|
| (10,614)
|
State (a)
| 10,098
|
| (780)
|
| (1,109)
|
| 1,178
|
| (5,422)
|
| -
|
| 34,204
|
| (6,974)
|
| 9,999
|
| (82,895)
|
| (31,945)
|
| (10,614)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
| $ 25,834
|
| $ 3,778
|
| $ 16,948
|
| $ (78,872)
|
| $ (13,569)
|
| $ 2,115
|
- Effective date of New York State income tax implementation for Niagara Mohawk was January 1, 2000.
Reconciliation between federal income taxes and the tax computed at prevailing U.S. statutory rate on income before income taxes:
|
|
| 30 Day Period
| Three Months
|
|
|
|
|
|
| March 31,
|
| January 30,
|
| March 31,
|
| Year Ended December 31,
|
| 2002
|
| 2002
|
| 2001
|
| 2001
|
| 2000
|
| 1999
|
|
|
|
|
| (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
Computed tax
| $ 19,768
|
| $ (5,883)
|
| $ 17,835
|
| $ (20,830)
|
| $ (14,425)
|
| $ (2,691)
|
| (Successor)
|
|
|
| (Predecessor)
|
|
|
|
|
|
|
Increase (reduction) including those attributable to
|
|
|
|
|
|
|
|
|
|
|
flow-through of certain tax adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
| 3,202
|
| 1,493
|
| 17,112
|
| 18,620
|
| 27,366
|
| 21,380
|
Cost of removal
| (1,139)
|
| (583)
|
| (7,682)
|
| (6,441)
|
| (6,936)
|
| (6,809)
|
Allowance for funds used
|
|
|
|
|
|
|
|
|
|
|
|
during construction
| 133
|
| 47
|
| (1,527)
|
| (806)
|
| (1,179)
|
| (2,538)
|
State income taxes (a)
| 2,541
|
| 1,839
|
| (765)
|
| 1,564
|
| (4,954)
|
| 143
|
Non-deductible Executive
|
|
|
|
|
|
|
|
|
|
|
|
compensation
| -
|
| 9,878
|
| -
|
| -
|
| -
|
| -
|
Goodwill Adjustments
| -
|
| (1,953)
|
| -
|
| -
|
| -
|
| -
|
Expiring foreign tax credits
| -
|
| -
|
| -
|
| -
|
| -
|
| 692
|
Pension settlement amortization
| -
|
| -
|
| -
|
| -
|
| (758)
|
| (278)
|
Debt premium & mortgage
|
|
|
|
|
|
|
|
|
|
|
|
recording tax
| 275
|
| 51
|
| 661
|
| 664
|
| 806
|
| 14,402
|
Real estate taxes
| -
|
| -
|
| -
|
| (414)
|
| (5,860)
|
| 3,540
|
Amortization of capital stock
| -
|
| 40
|
| 661
|
| 548
|
| 634
|
| 99
|
Dividends exclusion - federal
|
|
|
|
|
|
|
|
|
|
|
|
income tax returns
| (67)
|
| (34)
|
| (486)
|
| (468)
|
| (517)
|
| (449)
|
Vacation pay adjustment
| -
|
| -
|
| -
|
| 76
|
| 420
|
| (36)
|
Provided at other than statutory
|
|
|
|
|
|
|
|
|
|
|
|
rate
| 4
|
| (2)
|
| -
|
| (4)
|
| (1,186)
|
| 1,185
|
Supplemental Executive
|
|
|
|
|
|
|
|
|
|
|
|
Retirement trust fund
| -
|
| -
|
| -
|
| -
|
| (446)
|
| (268)
|
Settlement of IRS exams
| -
|
| -
|
| -
|
| -
|
| (1,852)
|
| -
|
Voluntary Early Retirement
|
|
|
|
|
|
|
|
|
|
|
|
Plan
| -
|
| -
|
| -
|
| 11,272
|
| -
|
| -
|
Allocation Percentage/Annualization
| -
|
| -
|
| (3,002)
|
| -
|
| -
|
| -
|
Subsidiaries
| (173)
|
| (96)
|
| (313)
|
| (1,115)
|
| 3
|
| (876)
|
Reserve for Hydra-Co sale expenses
| -
|
| -
|
| -
|
| -
|
| -
|
| (1,181)
|
Deferred investment tax credit
|
|
|
|
|
|
|
|
|
|
|
|
reversal (b)
| (528)
|
| (258)
|
| (7,420)
|
| (86,034)
|
| (6,110)
|
| (23,539)
|
Other
| 1,818
|
| (761)
|
| 1,874
|
| 4,496
|
| 1,425
|
| (661)
|
| 6,066
|
| 9,661
|
| (887)
|
| (58,042)
|
| 856
|
| 4,806
|
Federal income taxes
| $ 25,834
|
| $ 3,778
|
| $ 16,948
|
| $ (78,872)
|
| $ (13,569)
|
| $ 2,115
|
- Effective date of New York State income tax implementation for Niagara Mohawk was January 1, 2000.
(b) Deferred investment tax credits of $79.7 million, $0.8 million and $16.2 million related to the generation assets that have been sold have been taken into income in 2001, 2000 and 1999, respectively, in accordance with IRS rules.
The deferred tax liabilities (assets) were comprised of the following:
In thousands of dollars
|
| March 31,
|
| December 31,
|
|
| 2002
|
| 2001
|
| 2000
|
|
| (Successor)
|
| (Predecessor)
|
|
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
|
|
|
|
|
|
|
Alternative minimum tax
|
| $ (96,481)
|
| $ (95,899)
|
| $ (93,228)
|
Unbilled revenues
|
| (23,052)
|
| (23,052)
|
| (13,964)
|
Non-utilized NOL carryforward
|
| (607,292)
|
| (637,558)
|
| (804,503)
|
Liability for environmental costs
|
| (126,225)
|
| (129,625)
|
| (121,125)
|
VERO
|
| (249,150)
|
| -
|
| -
|
Other
|
| (286,657)
|
| (375,224)
|
| (481,261)
|
Total deferred tax assets
|
| (1,388,857)
|
| (1,261,358)
|
| (1,514,081)
|
|
|
|
|
|
|
|
Depreciation related
|
| 810,180
|
| 781,730
|
| 1,285,180
|
Investment tax credit related
|
| 49,115
|
| 23,026
|
| 62,734
|
Deferred environmental restoration costs
|
| 126,225
|
| 129,625
|
| 121,125
|
Merger rate plan stranded costs
|
| 1,169,525
|
| 1,370,605
|
| 1,037,106
|
Merger fair value pension and OPEB adjustment
|
| 188,856
|
| -
|
| -
|
Other
|
| 103,484
|
| 357,225
|
| 436,722
|
Total deferred tax liabilities
|
| 2,447,385
|
| 2,662,211
|
| 2,942,867
|
|
|
|
|
|
|
|
Accumulated deferred income
|
|
|
|
|
|
|
taxes
|
| $ 1,058,528
|
| $ 1,400,853
|
| $ 1,428,786
|
In December 1998, Niagara Mohawk received a ruling from the IRS which provided that the amount of cash and the value of common stock that was paid by Niagara Mohawk to the subject terminated IPP Parties was deductible in 1998 which resulted in Niagara Mohawk not paying any regular federal income taxes for 1998, and further generated a substantial net operating loss for federal income tax purposes. Niagara Mohawk carried back a portion of the unused NOL to the years 1996 and 1997, and also for the years 1988 through 1990, which resulted in federal income tax refunds of $135 million that were received in January 1999. As a result of the merger with National Grid, Niagara Mohawk is now part of the consolidated tax return filing group of National Grid USA. National Grid currently anticipates that the consolidated tax filing group will be able to utilize the remaining NOL carryforward prior to its expiration in 2019. The amount of the NOL carryforward as of March 31, 2002 is $1.724 billion. National Grid’s ability to utilize the NOL carryforward generated as a result of the MRA and the utilization of alternative minimum tax credits could be affected by the rules of Section 382 of the Internal Revenue Code.
NOTE 7. PENSION AND OTHER RETIREMENT PLANS
Niagara Mohawk has a non-contributory defined benefit pension plan covering substantially all employees. The plan includes a cash balance benefit in which the participant has an account to which amounts are credited based on qualifying compensation and with interest determined annually based on average annual 30-year Treasury bond yield. Supplemental non-qualified, non-contributory executive retirement programs provide additional defined pension benefits for certain officers. In addition, Niagara Mohawk, provides certain contributory health care and life insurance benefits for active and retired employees and dependents.
The changes in benefit obligations, plan assets and plan funded status for these pension and other retirement plans are summarized as follows:
In thousands of dollars
| Pension Benefits
| Other Retirement Benefits
|
| March 31,
|
| December 31,
|
| March 31,
|
| December 31,
|
| 2002
|
| 2001
|
| 2000
|
| 2002
|
| 2001
|
| 2000
|
Change in benefit obligation:
| (Successor)
|
| (Predecessor)
|
|
|
| (Successor)
|
| (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
| $ 1,246,620
|
| $ 1,183,775
|
| $ 1,111,833
|
| $ 651,423
|
| $ 562,594
|
| $ 519,058
|
Service cost
| 7,752
|
| 32,046
|
| 32,502
|
| 2,412
|
| 11,265
|
| 11,784
|
Interest cost
| 22,453
|
| 88,315
|
| 86,262
|
| 12,599
|
| 41,664
|
| 39,601
|
Benefits paid to participants
| (49,100)
|
| (125,038)
|
| (92,313)
|
| (11,402)
|
| (47,695)
|
| (40,528)
|
Plan amendments
| -
|
| 37,092
|
| 390
|
| 15,012
|
| 22,960
|
| -
|
Curtailments
| -
|
| (18,603)
|
| (178)
|
| -
|
| (16,016)
|
| (1,514)
|
Settlements
| (79,165)
|
| (21,199)
|
| (12,728)
|
| -
|
| -
|
| -
|
Actuarial (gain) loss
| 12,915
|
| 70,232
|
| 58,007
|
| 64,674
|
| 76,651
|
| 34,193
|
Special Termination Benefits
| 69,674
|
| -
|
| -
|
| 8,571
|
| -
|
| -
|
Benefit obligation at end of period
| 1,231,149
|
| 1,246,620
|
| 1,183,775
|
| 743,289
|
| 651,423
|
| 562,594
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
| 1,076,277
|
| 1,256,720
|
| 1,344,647
|
| 268,740
|
| 271,973
|
| 245,090
|
Contributions
| 23,404
|
| 4,000
|
| 29,247
|
| -
|
| -
|
| -
|
Net return on plan assets
| 2,500
|
| (59,838)
|
| (10,856)
|
| 8,130
|
| (3,233)
|
| 26,883
|
Benefits paid to participants
| (49,100)
|
| (124,605)
|
| (91,085)
|
| -
|
| -
|
| -
|
Settlements
| (64,546)
|
| -
|
| (15,233)
|
| -
|
| -
|
| -
|
Fair value of plan assets at end of period
| 988,535
|
| 1,076,277
|
| 1,256,720
|
| 276,870
|
| 268,740
|
| 271,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
| (242,614)
|
| (170,342)
|
| 72,945
|
| (466,419)
|
| (382,683)
|
| (290,621)
|
Unrecognized initial obligation
| -
|
| 6,800
|
| 10,253
|
| -
|
| 119,790
|
| 130,680
|
Unrecognized net gain (loss) from actual
|
|
|
|
|
|
|
|
|
|
|
|
return on plan assets
| 19,817
|
| (92,527)
|
| (249,756)
|
| (2,600)
|
| -
|
| -
|
Unrecognized net loss (gain) from past
|
|
|
|
|
|
|
|
|
|
|
|
experience different from that assumed
| (29,448)
|
| 77,107
|
| 39,939
|
| (24,129)
|
| 96,681
|
| 9,262
|
Unrecognized prior service cost
| -
|
| 86,894
|
| 73,290
|
| -
|
| 14,606
|
| (6,166)
|
Intangible Asset
| -
|
| (16,136)
|
| (391)
|
| -
|
| -
|
| -
|
Accumulated other comprehensive income
| -
|
| (11,818)
|
| (8,004)
|
| -
|
| -
|
| -
|
Benefits liability on Niagara Mohawk's
|
|
|
|
|
|
|
|
|
|
|
|
consolidated balance sheet
| $ (252,245)
|
| $ (120,022)
|
| $ (61,724)
|
| $ (493,148)
|
| $ (151,606)
|
| $ (156,845)
|
The purchase accounting that took place on January 31, 2002 required Niagara Mohawk to revalue its assets and liabilities at fair value. This revaluation resulted in an increase to Niagara Mohawk’s pension and post-retirement benefit liabilities of approximately $444.4 million. The major reasons for the increase were the recognition of formerly unrecognized components of the benefit liabilities and a change to adopt National Grid’s assumptions, primarily the attribution period for post-retirement benefits.
As part of the acquisition by National Grid, Niagara Mohawk made certain change-of-control payments under the supplemental non-qualified executive retirement program and offered a voluntary early retirement program to selected employees in areas targeted for staffing reductions. These items appear in the tables as Special Termination Benefits. Under the Merger rate plan, Niagara Mohawk was able to record a regulatory asset for the cost related to the revaluation of the qualified pension and post-retirement benefit plans. The costs of the change-of control payment under the non-qualified plan were charged to expense. The following table sets for the components and disposition of these costs:
(in millions of dollars)
|
|
|
|
|
|
| Charged to Expense
| Deferred in Merger Rate Plan Stranded Cost
| Totals
|
Pension benefits
| $ 25.7
|
| $ 44.0
|
| $ 69.7
|
Other post-retirement benefits
|
|
| 8.6
|
| 8.6
|
| $ 25.7
|
| $ 52.6
|
| $ 78.3
|
For the first quarter of 2002, Niagara Mohawk had a net settlement gain of $16.7 million relating to the sale of the Nuclear division. This gain has been deferred for future ratemaking purposes. In 2001, Niagara Mohawk experienced a net curtailment/settlement loss of $31.9 million due to the employee transfers associated with the sale of the nuclear assets and change of control payments under the supplemental executive retirement plan. Of the 2001 loss, $11.2 million is recorded in the deferred loss on the sale of assets, $6.0 million is due from co-tenants for their allocation of the plant ownership and $14.7 million was charged to expense. In 2000, Niagara Mohawk experienced a net pension curtailment/settlement gain of $2.8 million due to the employee transfers associated with the sales of the Oswego and Albany generating plants. These gains/losses are included in the deferred loss on the sale of the assets. In 1999, there was a net curtailment/settlement gain of $35.3 million due to employee transfers associated with generation asset sales and normal terminations.
The non-qualified executive pension plan has no plan assets due to the nature of the plan, and therefore, has an accumulated benefit obligation in excess of plan assets of $ 11.0 million, $17.3 million and $16.5 million at March 31, 2002, December 31, 2001 and 2000, respectively.
The following table summarizes the components of the net annual benefit costs. Approximately $7.2 million of pension and other retirement plan charges have been deferred for future ratemaking purposes.
| Pension Benefits
|
| Other Postretirement Benefits
|
| 60 Day
|
| 30 Day
|
|
|
|
|
| 60 Day
|
| 30 Day
|
|
|
|
|
| Period
|
| Period
|
|
|
|
|
| Period
|
| Period
|
|
|
|
|
| Ended
|
| Ended
|
|
|
|
|
| Ended
|
| Ended
|
|
|
|
|
| March 31,
|
| January 30,
| December 31,
|
| March 31,
|
| January 30,
|
| December 31,
|
| 2002
|
| 2002
|
| 2001
|
| 2000
|
| 2002
|
| 2002
|
| 2001
|
| 2000
|
| (Predecessor)
|
|
|
| (Successor)
|
|
| (Predecessor)
|
|
|
| (Successor)
|
|
Service cost
| $ 4,886
|
| $ 2,866
|
| $ 32,046
|
| $ 32,502
|
| $1,348
|
| $1,064
|
| $11,265
|
| $11,784
|
Interest cost
| 14,637
|
| 7,816
|
| 88,315
|
| 86,262
|
| 8,806
|
| 3,792
|
| 41,664
|
| 39,601
|
Expected return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on plan assets
| (14,751)
|
| (7,567)
|
| (94,247)
|
| (95,399)
|
| (3,458)
|
| (2,071)
|
| (24,436)
|
| (21,277)
|
Amortization of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
initial obligation
| -
|
| 191
|
| 2,240
|
| 2,381
|
| -
|
| 908
|
| 10,890
|
| 10,890
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains and losses
| -
|
| (174)
|
| (1,122)
|
| (5,028)
|
| -
|
| 1,332
|
| 7,101
|
| 4,841
|
Amortization of prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
service costs
| -
|
| 801
|
| 8,464
|
| 7,230
|
| -
|
| 302
|
| (7,207)
|
| (9,244)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit cost before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
curtailments and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settlements
| 4,772
|
| 3,933
|
| 35,696
|
| 27,948
|
| 6,696
|
| 5,327
|
| 39,277
|
| 36,595
|
Curtailment (gain) loss
| -
|
| -
|
| 14,063
|
| 1,025
|
| -
|
| -
|
| 3,179
|
| (1,635)
|
Settlement (gain) loss
| (16,726)
|
| -
|
| 14,689
|
| (2,232)
|
| -
|
| -
|
| -
|
| -
|
Special Termination Benefits
| 44,000
|
| 25,674
|
| -
|
| -
|
| 8,571
|
| -
|
| -
|
| -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit cost (1)
| $ 32,046
|
| $ 29,607
|
| $ 64,448
|
| $ 26,741
|
| $ 15,267
|
| $ 5,327
|
| $ 42,456
|
| $ 34,960
|
(1) A portion of the benefit costs relates to construction labor, and accordingly, is allocated to construction projects.
Niagara Mohawk also has a defined contribution pension plan (employee savings fund plan) that covers substantially all employees. Employer matching contributions of $ 2.2 million, $10.0 million, $10.2 million and $10.8 million were expensed in the first quarter ended March 31, 2002 and the years ended December 31, 2001, 2000 and 1999 respectively.
| Pension Benefits
|
| Other Retirement Benefits
|
| Quarter
|
|
|
|
|
| Quarter
|
|
|
|
|
| Ended
|
|
|
|
|
| Ended
|
|
|
|
|
| March 31,
|
| Year Ended December 31,
| March 31,
|
| Year Ended December 31,
|
| 2002
|
| 2001
|
| 2000
|
| 2002
|
| 2001
|
| 2000
|
Weighted average assumptions
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
| 7.50%
|
| 7.25%
|
| 7.75%
|
| 7.50%
|
| 7.25%
|
| 7.75%
|
Expected return on plan assets
| 8.75
|
| 9.50
|
| 9.50
|
| 8.50
|
| 9.25
|
| 9.50
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
|
|
|
(plus merit increases)
| 3.25
|
| 2.50
|
| 2.50
|
| N/A
|
| N/A
|
| N/A
|
Health care cost trend rate:
|
|
|
|
|
|
|
|
|
|
|
|
Under age 65
| N/A
|
| N/A
|
| N/A
|
| 10.00
|
| 9.00
|
| 9.00
|
Over age 65
| N/A
|
| N/A
|
| N/A
|
| 10.00
|
| 9.00
|
| 9.00
|
The assumed health cost trend rates decline to five percent in 2007 and remain at that level thereafter. The assumed health cost trend rates can have a significant effect on the amounts reported for the health care plans.
A one-percentage-point change in assumed health care cost trend rates would have the following effects:
| (in thousands of dollars)
|
Effect on total of service and interest
|
|
|
|
cost components of net periodic
|
|
|
|
postretirement health care benefit cost
| $ 1,152
|
| $ (1,026)
|
|
|
|
|
Effect on the health care component of
|
|
|
|
the accumulated postretirement
|
|
|
|
benefit obligation
| $ 73,952
|
| $ (67,253)
|
Niagara Mohawk recognizes the obligation to provide post-employment benefits if the obligation is attributable to employees’ past services, rights to those benefits are vested, payment is probable and the amount of the benefits can be reasonably estimated. At March 31, 2002, December 31, 2001 and 2000, Niagara Mohawk’s post-employment benefit obligation is approximately $23.3 million, $22.4 million and $21.5 million, respectively.
NOTE 8. COMMITMENTS AND CONTINGENCIES
LONG-TERM CONTRACTS FOR THE PURCHASE OF ELECTRIC POWER: Niagara Mohawk has several types of long-term contracts for the purchase of electric power. Niagara Mohawk’s commitments under these long-term contracts, as of March 31, 2002, excluding its commitments with NYPA, which are shown separately, are summarized in the table below. Niagara Mohawk did not enter into any new agreements in the first three months of 2002. Following the table are descriptions of the different types of these long-term contracts. For a detailed discussion of the financial swap agreements that Niagara Mohawk has entered into as part of the MRA and the sale of its generation assets (the sale of the Huntley and Dunkirk coal-fired generation plants and the sale of the Albany oil and gas-fired generation plant) which are not included in the table below, see Note 9.
| (In thousands of dollars)
|
|
|
|
| Estimated
| Estimated
|
| Estimated
|
| Estimated
|
Fiscal Year
| Fixed Costs
| Variable Costs
|
| Purchased
|
| Purchased
|
Ended
|
| Capacity,
|
| Capacity
|
| Energy
|
March 31,
| Capacity
| Energy and Taxes **
| Total
| (in MW)
|
| (in MWh)
|
|
|
|
|
|
|
|
2003
| $52,810
| $527,728
| $580,538
| 3,265
|
| 12,461,804
|
2004
| 35,082
| 520,149
| 555,231
| 3,243
|
| 12,274,313
|
2005
| 18,795
| 455,471
| 474,266
| 2,023
|
| 10,699,916
|
2006
| 15,207
| 390,410
| 405,617
| 1,394
|
| 9,198,028
|
2007
| 15,337
| 385,733
| 401,070
| 1,393
|
| 9,270,468
|
2008-2017
| 59,572
| 2,042,284
| 2,101,856
| 1,351
| *
| 39,010,449
|
∗ MW value represents the average annual quantity of purchased capacity
∗∗ Does not include puts (see below)
PURPA Contracts
Under the requirements of PURPA, Niagara Mohawk is required to purchase power generated by IPPs, as defined therein. Niagara Mohawk has 107 PPAs with 115 IPP facilities, amounting to approximately 500 MW of capacity at March 31, 2002. All of this capacity amount is considered firm and excludes PPAs that provide energy only. The table above includes the estimated payments for fixed costs (capacity) and variable costs (capacity, energy and related taxes) that Niagara Mohawk estimates it will be obligated to make under these 107 IPP contracts, excluding the put contracts (see below) and the financial obligation under the swap contracts. The payments to the IPPs are subject to the tested capacity and availability of the facilities, scheduling and price escalation. These payments have been significantly reduced by the consummation of the MRA and additional IPP restructurings made in 1999 and 2000.
Fixed capacity costs (in the table above) relate to three contracts as follows: 1) a contract with an IPP, 2) a contract entered into along with the sale of the Oswego generation assets as discussed further below, and 3) the contract entered into along with the sale of the hydroelectric generation assets as discussed further below. With respect to the IPP contract, Niagara Mohawk is required to make capacity payments, including payments when the facility is not operating but available for service. The terms of this contract allow Niagara Mohawk to schedule energy deliveries and then pay for the energy delivered. Contracts relating to the remaining IPP facilities in service at March 31, 2002 require Niagara Mohawk to pay only when energy is delivered. Niagara Mohawk paid approximately $89.6 million, $320.8 million, $415.6 million and $435.2 million in the three months ended March 31, 2002, and the years end December 31, 2001, 2000 and 1999 for 671,000 MWh, 3,340,000 MWh, 5,077,000 MWh and 6,768,000 MWh, respectively, of electric power under all IPP contracts.
Fossil/Hydro Contracts
As part of the sale of Niagara Mohawk’s fossil and hydro generation assets, Niagara Mohawk entered into PPAs with the buyers of these assets for the purchase of capacity and energy as discussed in more detail below. The table above includes the estimated payments for variable costs and quantities (capacity and energy) associated with the PPAs that Niagara Mohawk estimates it will make under these contracts. Niagara Mohawk paid approximately $32.9 million in the three months ended March 31, 2002, $108.6 million in 2001, $137.0 million in 2000 and $123.7 million in 1999 for 2,769 MW, 2,945 MW, 1,948 MW and 2,409 MW of capacity and 677,186 MWh, 2,573,000 MWh, 3,274,000 MWh and 3,490,000 MWh of electric power, respectively, under these PPAs.
The hydro PPA calls for the purchase of all energy and capacity through September 2004 at prices that approximate forecasted future market prices. Niagara Mohawk anticipates that the energy and capacity to be purchased under the hydro PPA to be at quantities approximating historical generation levels, subject to the effects of water flow availability. The Oswego PPA is primarily a contract for capacity with a nominal amount of energy at prices above forecasted future market prices.
Nuclear Contracts
The table above includes the estimated payments for variable costs and quantities (capacity and energy) associated with the PPAs entered into with the buyers of the nuclear generation assets. As part of the agreement with Constellation to sell its nuclear generation assets, Niagara Mohawk entered into PPAs to purchase 90 percent of the actual hourly nuclear plant output for its percentage interest of the nuclear plants at what are currently believed to be competitive prices for approximately 8 years (Unit 1) and 10 years (Unit 2). Niagara Mohawk pays only for delivered output from the units. Upon the expiration of the PPA for Unit 2, there is a revenue sharing agreement whereby Niagara Mohawk is entitled to future payments from Constellation over a ten-year period if electric energy and capacity market prices exceed certain amounts during the ten-year sharing period. Niagara Mohawk would not be required to buy energy from Constellation, LLC under the revenue sharing agreement. Purchases under the nuclear PPAs began in November 2001. Niagara Mohawk paid approximately $60.7 million for 1,945,956 MWh of electric power and 1,086 MW of capacity in the three months ended March 31, 2002 and $38.0 million for 1,266,072 of electric power and 1,086 MW of capacity in 2001.
Put Contracts
As a part of the MRA, Niagara Mohawk signed agreements with eight of the IPP Parties whereby the IPP Parties have an option to sell the physical delivery of electric power to Niagara Mohawk at market prices. These agreements would have been in effect until the earlier of the NYISO meeting certain volume and capacity conditions for a consecutive six-month period or until June 2008. Although the volume and capacity conditions have not yet been met in all of the contracts, Niagara Mohawk has negotiated to terminate the requirement to purchase electric power from the eight IPP Parties with put agreements. Consequently, there is no further obligation to purchase electric power under these contracts and information related to such contracts is not included in the table above. Niagara Mohawk did not pay anything in the three months ended March 31, 2002, but paid approximately $1.4 million in 2001, $46.4 million in 2000 and $75.9 million in 1999 for 13,844 MWh, 898,037 MWh and 2,782,678 MWh, respectively, of electric power received as part of these put agreements.
While the PPAs for the fossil/hydro asset sales, which were entered into as an integral part of the generation sales, are above market, they are designed to help Niagara Mohawk meet the objectives of rate reduction and price cap commitments as well as meet expected demand as the “provider of last resort” as outlined in the Power Choice agreement.
At March 31, 2002, Niagara Mohawk had long-term contracts to purchase electric power from the following generation facilities owned by NYPA:
| Expiration
| Purchased
| Estimated
| Estimated
|
| date of
| capacity
| annual
| annual
|
Facility
| contract
| in MW
| capacity cost
| energy cost
|
|
|
|
|
|
Niagara - hydroelectric
|
|
|
|
|
project
| 2007
| 934
| $ 31,596,000
| $ 34,250,000
|
St. Lawrence - hydroelectric
|
|
|
|
|
project
| 2007
| 104
| 1,258,000
| 3,153,000
|
Blenheim-Gilboa - pumped
|
|
|
|
|
storage generating station
| 2002
| 270
| 1,900,000
| 6,950,000
|
|
|
|
|
|
|
| 1,308
| $ 34,754,000
| $ 44,353,000
|
The purchase capacities shown above are based on the contracts currently in effect. The estimated annual capacity costs are subject to price escalation and are exclusive of applicable energy charges. The total cost of purchases under these contracts, plus other miscellaneous NYPA purchases, was approximately, in millions, $34.7 , $141.1, $144.3 and $112.4 for the three months ended March 31, 2002 and the years 2001, 2000 and 1999, respectively. Niagara Mohawk continues to have a contract with NYPA’s Fitzpatrick nuclear facility to purchase for resale up to 46 MW of power for NYPA’s economic development customers.
In addition to the contractual commitments described above, Niagara Mohawk entered into a four-year contract, expiring in June 2003, that gives it the option to buy additional power at market prices from the Huntley coal-fired generation plant, now owned by a new owner. If Niagara Mohawk needs any additional energy to meet its load it can purchase the electricity from other IPPs, other utilities, other energy merchants or through the NYISO at market prices.
GAS SUPPLY, STORAGE AND PIPELINE COMMITMENTS: In connection with its regulated gas business, Niagara Mohawk has long-term commitments with a variety of suppliers and pipelines to purchase gas commodity, provide gas storage capability and transport gas commodity on interstate gas pipelines.
The table below sets forth Niagara Mohawk’s estimated commitments at March 31, 2002, for the next five years, and thereafter.
Fiscal Year
| (In thousands of dollars)
|
Ended
|
| Gas Storage/
|
March 31,
| Gas Supply
| Pipeline
|
|
|
|
2003
| $79,350
| $62,622
|
2004
| 54,292
| 60,609
|
2005
| 54,405
| 65,256
|
2006
| 52,133
| 9,995
|
2007
| 33,990
| 6,106
|
Thereafter
| -
| 30,135
|
With respect to firm gas supply commitments, the amounts are based upon volumes specified in the contracts giving consideration for the minimum take provisions. Commodity prices are based on New York Mercantile Exchange quotes and reservation charges, when applicable. Storage and pipeline capacity commitments’ amounts are based upon volumes specified in the contracts, and represent demand charges priced at current filed tariffs. At March 31, 2002, Niagara Mohawk’s firm gas supply commitments extend through October 2006, while the gas storage and transportation commitments extend through October 2012.
SALE OF CUSTOMER RECEIVABLES: Niagara Mohawk has established a single-purpose, financing subsidiary, NM Receivables LLC (“NMR”), whose business consists of the purchase and resale of an undivided interest in a designated pool of Niagara Mohawk customer receivables, including accrued unbilled revenues. For receivables sold, Niagara Mohawk has retained collection and administrative responsibilities as agent for the purchaser. As collections reduce previously sold undivided interests, new receivables are customarily sold. NMR has its own separate creditors which, upon liquidation of NMR, will be entitled to be satisfied out of its assets prior to any value becoming available to Niagara Mohawk. The sale of receivables are in fee simple for a reasonably equivalent value and are not secured loans. Some receivables have been contributed in the form of a capital contribution to NMR in fee simple for reasonably equivalent value, and all receivables transferred to NMR are assets owned by NMR in fee simple and are not available to pay Niagara Mohawk’s creditors.
At March 31, 2002, no receivables had been sold by NMR to a third party. At December 31, 2001 and 2000, $132.3 million and $230.1 million, respectively, of receivables had been sold by NMR to a third party. The undivided interest in the designated pool of receivables was sold with limited recourse. The agreement provides for a formula based loss reserve pursuant to which additional customer receivables are assigned to the purchaser to protect against bad debts. At December 31, 2001, the amount of additional receivables assigned to the purchaser, as a loss reserve, was approximately $47.9 million.
To the extent actual loss experience of the pool receivables exceeds the loss reserve, the purchaser absorbs the excess. Concentrations of credit risk to the purchaser with respect to accounts receivable are limited due to Niagara Mohawk’s large, diverse customer base within its service territory. Niagara Mohawk generally does not require collateral (i.e. customer deposits).
From the fourth quarter of 1999 through April 2000, and in September 2000 through December 2000, and during February 2001, NMR was not in compliance with a certain statistical ratio relating to the pool of receivables sold. The purchaser granted waivers for this period. NMR was in compliance with the ratio for the months of May through August 2000, January 2001 and March through May 2001. The amount of receivables sold at June 30, 2001 was $290 million, which exceeded the amount that could be supported by the then outstanding accounts receivable. Subsequently, the amount of receivables sold has been reduced to bring Niagara Mohawk back into compliance.
ENVIRONMENTAL CONTINGENCIES: The public utility industry typically utilizes and/or generates in its operations a broad range of hazardous and potentially hazardous wastes and by-products. Niagara Mohawk believes it is handling identified wastes and by-products in a manner consistent with federal, state, and local requirements and has implemented an environmental audit program to identify any potential areas of concern and aid in compliance with such requirements. Niagara Mohawk is also currently conducting a program to investigate and remediate, as necessary, to meet current environmental standards, certain properties associated with former gas manufacturing and other properties which Niagara Mohawk has learned may be contaminated with industrial waste, as well as investigating identified industrial waste sites as to which it may be determined that Niagara Mohawk has contributed. Niagara Mohawk has also been advised that various federal, state, or local agencies believe certain properties require investigation and has prioritized the sites based on available information in order to enhance the management of investigation and remediation, if necessary.
Niagara Mohawk is currently aware of 121 sites with which it may be associated, including 62 which are Niagara Mohawk-owned. With respect to non-owned sites, Niagara Mohawk may be required to contribute some proportionate share of remedial costs. Although one party can, as a matter of law, be held liable for all of the remedial costs at a site, regardless of fault, in practice costs are usually allocated among PRPs. Niagara Mohawk has denied any responsibility at certain of these PRP sites and is contesting liability accordingly.
Investigations at each of the Niagara Mohawk-owned sites are designed to (1) determine if environmental contamination problems exist; (2) if necessary, determine the appropriate remedial actions; and (3) where appropriate, identify other parties who should bear some or all of the cost of remediation. Legal action against such other parties will be initiated where appropriate. As site investigations are completed, Niagara Mohawk expects to determine site-specific remedial actions and to estimate the attendant costs for restoration. However, since investigations and regulatory reviews are ongoing for most sites, the estimated cost of remedial action is subject to change.
Estimates of the cost of remediation and post-remedial monitoring are based upon a variety of factors, including identified or potential contaminants, location, size and use of the site, proximity to sensitive resources, status of regulatory investigation, and knowledge of activities at similarly situated sites. Additionally, Niagara Mohawk’s estimating process includes an initiative where these factors are developed and reviewed using direct input and support obtained from the New York State Department of Environmental Conservation (“DEC”). Actual Niagara Mohawk expenditures are dependent upon the total cost of investigation and remediation and the ultimate determination of Niagara Mohawk’s share of responsibility for such costs, as well as the financial viability of other identified responsible parties since clean-up obligations are joint and several.
As a consequence of site characterizations and assessments completed to date and negotiations with other PRPs or with the appropriate environmental regulatory agency, Niagara Mohawk has accrued a liability in the amount of $297 million, which is reflected in Niagara Mohawk’s Consolidated Balance Sheets at March 31, 2002. The potential high end of the range is presently estimated at approximately $524 million. Niagara Mohawk decreased its environmental liability $8 million in the three months ended March 31, 2002 as compared to the year ended December 31, 2001 due to the availability of information on certain sites resulting from the progress made on the remediation of two sites and the issuance of a consultant’s study on another site in February 2002. During the consultant’s review of the site, it was determined that the material on the site that was originally thought to be hazardous is non-hazardous. The probabilistic method was used to determine the amount to be accrued for 20 of Niagara Mohawk’s largest sites. The amount accrued for Niagara Mohawk’s remaining sites is determined through feasibility studies or engineering estimates, Niagara Mohawk’s estimated share of a PRP allocation or where no better estimate is available, the low end of a range of possible outcomes is used. In response to an October 1999 request for information, Niagara Mohawk informed the DEC of 24 additional former manufactured gas plant sites that it may be associated with, including two sites that are currently owned by Niagara Mohawk. Niagara Mohawk and the DEC have executed a voluntary clean-up order with the DEC for the investigation and, as required, the remediation of these additional sites. Niagara Mohawk has included amounts for only the investigation of these sites in the estimated liability Niagara Mohawk is currently unable to estimate the costs to remediate these additional sites, since they primarily relate to non-owned sites that have been owned and operated by other parties, as well as by some former manufactured gas plant-related predecessor companies of Niagara Mohawk, and because they have not been subjected to site investigations.
Niagara Mohawk has recorded a regulatory asset representing the investigation, remediation and monitoring obligations to be recovered from ratepayers. The merger rate plan provides for the continued application of deferral accounting for variations in spending from amounts provided in rates. As a result, Niagara Mohawk does not believe that site investigation and remediation costs will have a material adverse effect on its results of operations or financial condition.
Based on previously submitted feasibility studies and the DEC’s ongoing regulatory review process for Niagara Mohawk’s Harbor Point site, the estimated total cost range for this site consists of a high end of $83.8 million, with an expected value calculation of $60.3 million, which is included in the amounts accrued at March 31, 2002. The DEC has categorized this site into three operating units. With respect to one operating unit, the DEC issued a record of decision (“ROD”) in March 2001. Based on this ROD and legal settlement efforts with respect to another responsible party, the estimated range for this operating unit consists of a high end of $15.3 million and an expected value calculation of $13.2 million. With respect to another operating unit, the DEC issued an ROD in March 2002. Currently, the high end of this unit is estimated to be $63.5 million, with an expected value calculation of $43.2 million. With respect to the last operating unit, the DEC is requiring additional investigations and a feasibility study. Currently, the high end of this unit is estimated to be $5.0 million, with an expected value calculation of $3.9 million. The estimated costs for the latter two operating units do not consider contributions from other PRPs, the amount of which Niagara Mohawk is unable to estimate.
NUCLEAR CONTINGENCIES: On November 7, 2001, Niagara Mohawk sold its nuclear assets to Constellation. However, Niagara Mohawk remains liable for certain nuclear matters after the sale, including the obligation to pay all decommissioning and decontamination fees established by the Energy Policy Act of 1992 (the “Act”). Such fees support decommissioning and decontamination associated with pre-existing conditions at DOE gaseous diffusion plants. The Act authorized annual deposits for 15 years. Niagara Mohawk has made 10 payments to date and has a remaining liability of $11.0 million.
Niagara Mohawk had nuclear property insurance with Nuclear Electric Insurance Limited (“NEIL”) prior to the sale of its nuclear assets. NEIL insurance is subject to retrospective premium adjustment under which Niagara Mohawk could be assessed up to approximately $12.1 million per loss. Niagara Mohawk is still liable for retrospective premium adjustments that are associated with NEIL losses that occurred prior to the date of the sale for up to a period of six years following the sale. Likewise, Niagara Mohawk would also be entitled to refunds of premiums paid, if any. As of March 31, 2002, Niagara Mohawk has not been made aware of any material retrospective premium adjustments.
As of March 31, 2002, Niagara Mohawk has a liability of $139.7 million in other regulatory and other liabilities for the disposal of nuclear fuel irradiated prior to 1983. In January 1983, the Nuclear Waste Policy Act of 1982 (the “Nuclear Waste Act”) established a cost of $.001 per KWh of net generation for current disposal of nuclear fuel and provides for a determination of Niagara Mohawk’s liability to the DOE for the disposal of nuclear fuel irradiated prior to 1983. The Nuclear Waste Act also provides three payment options for liquidating such liability and Niagara Mohawk has elected to delay payment, with interest, until the year in which Constellation, the new owners of Niagara Mohawk’s nuclear assets, initially plans to ship irradiated fuel to an approved DOE disposal facility. Progress in developing the DOE facility has been slow and it is anticipated that the DOE facility will not be ready to accept deliveries until at least 2010.
CONSTRUCTION PROGRAM: Niagara Mohawk is committed to an ongoing construction program to assure transmission and delivery of its electric and gas services. Niagara Mohawk presently estimates that the construction program for the fiscal years ended March 31, 2003 through 2005 will require approximately $631 million. For the fiscal years ended March 31, 2003 through 2005, the estimates, in millions, are $215, $210, and $205, respectively.
NOTE 9. FAIR VALUE OF FINANCIAL AND DERIVATIVE FINANCIAL INSTRUMENTS
The financial instruments held or issued by Niagara Mohawk are used for investing, financing, hedging or cost control. Niagara Mohawk does not engage in trading activity. There is a separate section for a discussion of “INVESTMENTS IN DEBT AND EQUITY SECURITIES.” In the sections following the table below is a description of the instruments and the methods and assumptions used to estimate the fair value of each class of financial instruments. The carrying amount and estimated fair values of all other financial instruments are as follows:
|
| March 31, 2002
|
|
|
| December 31, 2001
|
|
| December 31, 2000
|
|
| (in thousands of dollars)
| Carrying
| Fair
|
|
| Carrying
| Fair
|
|
| Carrying
| Fair
|
|
|
| Amount
| Value
| Units
|
| Amount
| Value
| Units
|
| Amount
| Value
| Units
|
|
| (Successor)
|
|
|
| (Predecessor)
|
|
|
|
|
|
|
Non-Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and temporary
|
|
|
|
|
|
|
|
|
|
|
|
| cash investments
| $ 31,455
| $ 31,455
|
|
| $ 125,979
| $ 125,979
|
|
| $ 77,070
| $ 77,070
|
|
| Mandatorily redeemable
|
|
|
|
|
|
|
|
|
|
|
|
| preferred stock
| -
| -
|
|
| 53,750
| 57,799
|
|
| 61,370
| 60,684
|
|
| Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
| First Mortgage Bonds
| 1,818,988
| 1,913,587
|
|
| 1,938,000
| 2,053,852
|
|
| 2,248,000
| 2,265,265
|
|
| Senior Notes
| 2,446,713
| 2,552,809
|
|
| 2,448,625
| 2,565,129
|
|
| 2,415,816
| 2,420,143
|
|
| Promissory Notes
| 413,760
| 413,760
|
|
| 413,760
| 413,760
|
|
| 413,760
| 413,760
|
|
| Other
| 9,695
| 9,695
|
|
| 159,694
| 159,694
|
|
| 331,535
| 331,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments - Not Qualified as Hedges
|
|
|
|
|
|
|
|
|
|
|
| Liability for Swap Contracts
| (653,949)
| (653,949)
|
|
| (733,487)
| (733,487)
|
|
| (778,229)
| (778,229)
|
|
| Gas Futures - IPP Swaps
| -
| -
|
|
| (6,191)
| (6,191)
| 3270 Dth
|
| 44,882
| 44,882
| 16460 Dth
|
| Gas Futures - Non-MRA IPP
| -
| -
|
|
| (595)
| (595)
| 310 Dth
|
| 5,262
| 5,262
| 1930 Dth
|
| Gas Basis Swaps
| -
| -
|
|
| -
| -
|
|
| 2,486
| 2,486
| 20170 Dth
|
| Oil Commodity Swap
| -
| -
|
|
| -
| -
|
|
| (2,719)
| (2,719)
| 7720 bbl
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments - Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
| Gas Futures - Gas Supply
| -
| -
|
|
| (5,484)
| (5,484)
| 3060 Dth
|
| 8,000
| 8,000
| 1600 Dth
|
| Electric Swaps
| -
| -
|
|
| -
| -
|
|
| 4,442
| 4,442
| 714 MWh
|
NON-DERIVATIVE INSTRUMENTS
CASH AND TEMPORARY CASH INVESTMENTS: The carrying amount approximates fair value because of the short maturity of the financial instruments.
LONG-TERM DEBT AND MANDATORILY REDEEMABLE PREFERRED STOCK: The fair value of fixed rate long-term debt and redeemable preferred stock is estimated using quoted market prices where available or discounting remaining cash flows at Niagara Mohawk’s incremental borrowing rate. The carrying value of NYSERDA bonds and other long-term debt is considered to approximate fair value.
DERIVATIVE INSTRUMENTS - NOT QUALIFIED AS HEDGES
The fair value of futures and swap contracts are determined using quoted market prices or broker quotes, where available, and various financial modeling tools. Prior to January 1, 2001, derivatives and hedging contracts were accounted for under SFAS No. 80, “Accounting for Futures Contracts.” On January 1, 2001, Niagara Mohawk adopted SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. Hedges and other derivative instruments are recorded at fair value as assets or liabilities. If the contracts qualify for hedge accounting gains and losses are included in Other Comprehensive Income, net of applicable deferred taxes, until the hedge month occurs. Instruments not qualifying for hedge accounting fall under regulatory rulings, and therefore, gains or losses have been deferred as regulatory liabilities or assets.
LIABILITY FOR SWAP CONTRACTS: Niagara Mohawk has eight IPP indexed swap contracts that resulted from the Master Restructuring Agreement (MRA) and three swap contracts from the sale of Niagara Mohawk’s Huntley, Dunkirk and Albany electric generating stations. Niagara Mohawk recorded a liability for these contractual obligations and recorded a corresponding regulatory asset because payments under these contracts are authorized and are being recovered under the current rate agreement. The amount of the liability and regulatory asset will fluctuate as estimates of future market and contract prices change over the term of the contracts, and will decrease over the life of the contracts as notional quantities are settled. Significant terms of the contracts are as follows.
IPP Indexed Swap Contracts: Niagara Mohawk, as part of the MRA, entered into restated contracts with eight IPPs. The contracts began in July 1998 and expire in June 2008. They are structured as indexed swap contracts where Niagara Mohawk receives or makes payments based upon the difference between the contract price and a market reference price for electricity. As of March 31, 2002, December 31, 2001 and 2000, Niagara Mohawk has recorded a $628.7 million, $689.3 million and $747.1 million in the liability for swap contracts, respectively, and has recorded a corresponding swap contracts regulatory asset.
The contract prices were fixed for the first two years, and in July 2000 changed to an indexed pricing formula primarily related to natural gas prices. The indexed pricing structure ensures that the price paid for energy and capacity will fluctuate relative to the underlying market cost of gas and general indices of inflation. Contract quantities are fixed for each year of the full ten-year term of the contracts and average 4.1 million MWh.
The price of natural gas fluctuates over time. This volatility, when factored into the indexing formulas of the IPP swaps, creates a corresponding volatility in the anticipated contract prices. Natural gas is also a major fuel source for electric generation in New York. Therefore, changes in cost of natural gas generally trigger a change in the price of electricity. Since the net swap payment is based on the difference between the contract prices and referenced electricity prices, this has tended to mitigate the overall impact of the gas price volatility on the swap payments. Niagara Mohawk, attempts to further mitigate such volatility through the use of various financial instruments. See the discussion on the “Gas Futures - IPP Swaps” and “Gas Basis Swaps,” below.
Huntley, Dunkirk and Albany Swap Contracts: Concurrent with the sale of the generating stations, Niagara Mohawk signed agreements to purchase capacity and energy from the new owners under contracts that converted to financial swaps upon certain criteria being met. These instruments are purely financial contracts; no electricity is delivered under these agreements. Each month, the payment is the net of a fixed charge and a financial swap. The swap payment is based on the difference between contract prices and referenced market prices applied to notional quantities. For Huntley and Dunkirk, the contract prices and notional quantities are fixed. Quantities average 2.9 million MWh annually. These agreements expire in June 2003. The Albany contract has a contract price that is indexed to either gas or oil costs and the monthly quantity is based on a call option by Niagara Mohawk with the total call quantity capped each year at 1,300 GWh. This contract expires in September 2003.
The anticipated overmarket payments under the swap contracts represent a liability of Niagara Mohawk. As of March 31, 2002, December 31, 2001 and 2000, Niagara Mohawk has recorded $25.2 million, $44.2 million and $31.1 million, respectively and has recorded a corresponding swap contract regulatory asset. The asset and liability will be amortized over the remaining term of the swaps as nominal energy quantities are settled and may be adjusted as periodic reassessments are made of future energy prices.
The reason for the decrease in the swap liability from December 31, 2001, is an increase in the forecasted price of power over the remaining terms of the contracts. The liabilities also decreased due to the amortization of the contract quantities. The contract prices that Niagara Mohawk pays for Huntley and Dunkirk are fixed and for Albany, while indexed to the cost of gas or oil, prices do not move precisely in step with the fuel cost. Therefore, since the swap payments are the difference between the contract prices (Niagara Mohawk pays) and referenced electricity prices (Niagara Mohawk receives), an increase in forecasted electric prices relative to the contract prices would tend to decrease the remaining liability.
At March 31, 2002, Niagara Mohawk projects that it will make the following payments in connection with the IPP, Huntley/Dunkirk and Albany swap contracts for the years 2003 to 2007, and thereafter subject to changes in market prices and indexing provisions:
| Payment
|
Year Ended
| (in thousands
|
March 31,
| of dollars)
|
|
|
2003
| 128,070
|
2004
| 123,347
|
2005
| 134,275
|
2006
| 137,954
|
2007
| 146,318
|
Thereafter
| 184,282
|
The above-market payments under the IPP indexed swaps, Huntley, Dunkirk and Albany swaps, are recoverable under the current rate agreement. However, a regulatory exposure exists that obligates Niagara Mohawk to prudently manage its commodity costs. The payments under these swaps represent a component of purchased power that is passed along to ratepayers. The price of natural gas is the major component in the indexing of the IPP swap contracts. Natural gas and oil are the primary component of the indexing of the Albany swap. The prices for the Huntley and Dunkirk payments are fixed by the contracts. As noted in the discussion above on the various swap liabilities, increases in the price of natural gas can adversely impact the payments Niagara Mohawk will make. Beginning in 2000, Niagara Mohawk started taking steps to mitigate this risk by a combination of NYMEX gas futures, fixed for floating gas basis swaps, and an oil commodity swap. At March 31, 2002, there were no open positions in these contracts. In April 2002, Niagara Mohawk again began to purchase NYMEX futures contracts to mitigate the impact of gas prices on the IPP swap contracts (see discussion on GAS FUTURES-IPP SWAPS, GAS BASIS SWAPS, and OIL SWAP).
Niagara Mohawk has also been making payments to a non-MRA IPP under a contract to buy power. The price for this power is indexed to natural gas. Increases in the price of gas could cause this contract to be more costly. Niagara Mohawk purchases NYMEX gas futures contracts to mitigate the impact the price of gas has on this contract. At March 31, 2002, there were no open contracts, however, in April 2002, Niagara Mohawk again began to purchase NYMEX futures contracts to mitigate the impact of gas prices on this contract (see discussion on GAS FUTURES-NON-MRA IPP below).
GAS FUTURES - IPP SWAPS: In July 2000, the payments Niagara Mohawk made on the eight IPP swap contracts began indexing with natural gas as the primary component of the indexing formula. Through negotiations, Niagara Mohawk has removed the gas price risk on one of the IPP swaps for the calendar year 2002. For the other seven contracts Niagara Mohawk purchases NYMEX gas futures to hedge the gas commodity component of the indexed contract payments. Niagara Mohawk’s plan is to hedge 100 percent of the anticipated impact that natural gas would have on the IPP swaps. At March 31, 2002 Niagara Mohawk had no open contracts. In April 2002, Niagara Mohawk again began to purchase NYMEX futures contracts to mitigate the impact of gas prices on these contracts for the period May 2002 through June 2003. As of March 31, 2002, December 31, 2001 and 2000, Niagara Mohawk has recorded deferred gains or (losses) of, $ 0, ($9.5 million), and $59.7 million. The variance from period to period is due to fluctuations in the futures price for gas. At year end 2001, the deferred loss was offset by in the balance sheet item Liabilities from Price Risk Management Activities for $6.2 million with $3.3 million having settled through Cash for the hedge month of January 2002.
GAS FUTURES - NON-MRA IPP: One non-MRA IPP contract includes a provision which indexes the price Niagara Mohawk pays to the IPP to the price of natural gas. This is a physical delivery power contract and not a financial instrument. Commensurate with the program for hedging the IPP swaps (see above); Niagara Mohawk began purchasing NYMEX gas futures as a means to mitigate the gas price risk associated with this contract. Niagara Mohawk attempts to hedge 100 percent of the anticipated impact that natural gas would have on the contract. At March 31, 2002 Niagara Mohawk had no open contracts. In April 2002, Niagara Mohawk again began to purchase NYMEX futures contracts to mitigate the impact of gas prices on this contract for the period May 2002 through June 2003. As of March 31, 2002, December 31, 2001 and 2000, Niagara Mohawk has recorded deferred gains or (losses) of, $ 0, ($.9 million), and $ 7 million. The variance from period to period is due to fluctuations in the futures price for gas. At year-end 2001, the deferred loss was offset by in the balance sheet item Liabilities from Price Risk Management Activities for $0.6 million with $0.3 million having settled through Cash for the hedge month of January 2002.
GAS BASIS SWAPS: The gas factor in the indexing formula for the seven IPPs which are still exposed to gas prices designates a particular geographic pricing point for the referenced price of natural gas. NYMEX futures contracts are predicated on the commodity price of gas at the Henry Hub in Louisiana. The term “basis” refers to the price differential between the price of gas at the Henry Hub and the price at some other particular pricing point. The gas component to the indexing formula in each of the IPP contracts encompasses both the commodity price and the basis cost for gas to the particular pricing point identified in the contract.
To more fully hedge the impact that gas prices have on the indexed price, Niagara Mohawk has used fixed for floating gas basis swap agreements with several counterparties. These contracts fix the basis cost of gas between the Henry Hub and each of the pricing points stated in the IPP swaps. Upon the expiration of the previous rate making agreement Niagara Mohawk has not continued this hedging program beyond August 2001, however consideration is being given to again using basis swaps to hedge the swap contracts. At March 31, 2002 and December 31, 2001 Niagara Mohawk has no open contracts versus a deferred gain of $2.5 million at year-end 2000.
OIL COMMODITY SWAP: The floating payment Niagara Mohawk makes on the Albany swap contract is indexed to the price of either natural gas or oil. Niagara Mohawk has the option of selecting which fuel is used in the calculation. Increases in gas and oil could adversely impact the cash flows of this contract. In order to mitigate the risk of exposure to the increased fuel cost, Niagara Mohawk chose to enter a fixed for floating swap on the price of oil for quantities that would offset the rise in the price of oil used in the Albany swap formula. If gas prices exceed oil prices, payments are based on oil prices, for which Niagara Mohawk has a hedge. If oil prices exceed gas prices, the swap payments will be based on gas prices.
Niagara Mohawk has used a fixed-for-floating swap for a set quantity of oil in specific months to hedge this Albany swap contract. Price movements in the oil swap were expected to correlate with changes in the cost of oil used in the Albany swap. Upon the expiration of the previous rate making agreement Niagara Mohawk has not continued this hedging program beyond August 2001. It has not been determined whether this hedging program will be resumed. At March 31, 2002 and December 31, 2001, Niagara Mohawk has no open contracts versus a deferred loss of $2.7 million at year-end 2000.
DERIVATIVE INSTRUMENTS - CASH FLOW HEDGES
The derivative financial instruments held by Niagara Mohawk are used for hedging or cost control and not for trading. Niagara Mohawk has an Exposure Management Committee (“EMC”) to monitor and control efforts to manage risks. The EMC oversees the Financial Risk Management Policy (the “Policy”) that outlines the parameters within which corporate managers are to engage in, manage, and report on various areas of risk exposure. At the core of the Policy is a condition that Niagara Mohawk will engage in activities at risk only to the extent that those activities fall within commodities and financial markets to which it has a physical market exposure in terms and volumes consistent with its core business.
Purchases of electricity and natural gas for distribution to its customers can expose Niagara Mohawk’s ratepayers to price risk for those commodities. During 2000 and continuing through the first quarter of 2002, Niagara Mohawk took steps to mitigate these risks through the purchase of NYMEX gas futures and by entering into fixed for floating electric swaps. The following hedges meet the qualifications for hedge accounting under SFAS No. 133 and are accounted for as such. The fair value of the instruments represents as asset or liability with deferred gains or losses recorded in Other Comprehensive Income, net of applicable deferred taxes.
GAS FUTURES and OPTIONS - GAS SUPPLY: For purchases of natural gas used to supply customers, Niagara Mohawk’s exposure to gas commodity price fluctuations is limited by a regulatory ruling that transfers the commodity price risk to the customer for prudently incurred commodity costs. Niagara Mohawk uses NYMEX gas futures and options as financial hedges to effectively and prudently manage those costs.
The item to be hedged, the purchase of natural gas, exposes Niagara Mohawk’s customers to commodity price volatility. The anticipated transactions being hedged are the purchases of natural gas for resale to customers. The hedging program is weighted toward the winter heating season of November through March, but covers other months to a lesser degree. Niagara Mohawk’s hedging program uses NYMEX gas futures and combinations of call and put options referred to as “collars.” There were no open futures contracts or options at March 31, 2002 and none purchased for April through June of 2002. At December 31, 2001 there were 306 open futures contracts and no open options. Beginning in May 2002, Niagara Mohawk begin hedging the period of July 2002 through March 2003.
At March 31, 2002, and December 31, 2001, Niagara Mohawk recorded a deferred loss on these instruments of $ 0 and $8.9 million versus a deferred gain of $13.0 million at year-end 2000. The December 31, 2001 deferred loss was offset by the balance sheet item “Liabilities from Price Risk Management Activities” for $5.5 million with $3.4 million having settled through “Cash” for the hedge month of January 2002.
The transactions that result in the reclassification to earnings of the gains or losses from the cash flow hedges are the purchase of natural gas in the months hedged. For the 30 day period ended January 30, 2002, and 60 day period ended March 31, 2002, losses of $3.4 million and $6.8 million were reclassified to “Gas Purchased” representing approximately 1.9 million Dth and 3.1 million Dth respectively. Through December 31, 2001, Niagara Mohawk recorded an increase of $7.5 million to “Gas Purchased” from the settlement of cash flow hedges representing approximately 12.4 million Dth. These losses were offset by corresponding decreases in the cost of purchasing comparable quantities of gas. There were no open contracts at March 31, 2002. When there are unrealized gains or losses they are recorded in “Accumulated other comprehensive income,” net of applicable deferred taxes. There were no gains or losses recorded during the 30 day period ended January 30, 2002 or 60 day period ended March 31, 2002 from the discontinuance of gas futures cash flow hedges.
ELECTRICITY SWAPS: At various times throughout the year, Niagara Mohawk may project that it would be in a short position for electricity needed to supply customers. In those months electricity is purchased through the NYISO at the market price. These purchases expose Niagara Mohawk’s ratepayers to market price risk. In order to maintain internal limits on exposure to market risks, Niagara Mohawk has used fixed-for-floating swaps on electricity to lock in the price for a portion of this shortage.
Niagara Mohawk had such contracts in 2000 and 2001 but does not have any open contracts as of March 31, 2002. For the contracts that were used, Niagara Mohawk paid fixed rates and the counterparty paid the NYISO market rate for contractually set quantities of on-peak and off-peak power. Since Niagara Mohawk is purchasing power through the NYISO in those same quantities and for the same periods, these swaps were highly effective in achieving offsetting cash flows. All of the electric swap contracts expired by July 31, 2001 and none remain open. Niagara Mohawk plans to use electric swaps as necessary in the future when projections show a short position in electricity. At March 31, 2002 and December 31, 2001, Niagara Mohawk had no open contracts versus a deferred gain of $4.4 million at year-end 2000.
The transactions that result in the reclassification to earnings of the gains or losses from the cash flow hedges are the purchase of electricity in the months hedged. Through March 31, 2002, Niagara Mohawk had no recorded gains or losses. Because there were no open contracts at year end there are no net deferred gains or losses at March 31, 2002, if there had been they would be recorded in “Accumulated other comprehensive income,” net of applicable deferred taxes. There were no gains or losses recorded during the year from the discontinuance of electricity swap cash flow hedges.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
At March 31, 2002 and December 31, 2001, Niagara Mohawk’s investments in debt and equity securities consisted entirely of assets in a trust fund for certain pension benefits. At December 31, 2000 these assets also included trust funds for decommissioning of its nuclear stations. With the sale of the nuclear facilities on November 7, 2001 and transfer of all decommissioning funds to the new owners, the only instruments remaining are the trust funds for the pension benefits. Niagara Mohawk has classified all investments in debt and equity securities as available for sale and has recorded all such investments at their fair market value at March 31, 2002, December 31, 2001 and December 31, 2000.
Prior to the sale of the nuclear assets, and to reduce the risk of a detrimental market shift affecting the funds, Niagara Mohawk converted all decommissioning assets to high grade, short-term commercial paper in late 1999. The instruments purchased had specified coupon rates and maturity dates of generally one to four months. Remaining cash was invested in an overnight, short-term investment fund. These actions lessened sales activity for 2002 and 2001. The proceeds from the sale of investments were $ 0 million, $33.0 million, and $177.7 million for the three months ended March 31, 2002, and calendar years 2001 and 2000 respectively. The decrease in activity is due to the change in fund composition and ultimate sale of the nuclear decommissioning trust fund.
The recorded fair values and cost basis of Niagara Mohawk’s investments in debt and equity securities is as follows:
(In thousands of dollars)
| Quarter Ended
|
|
|
| Year Ended
|
|
|
| Year Ended
|
|
|
| March 31, 2002
| December 31, 2001
| December 31, 2000
|
|
| Gross Unrealized
| Fair
|
| Gross Unrealized
| Fair
|
| Gross Unrealized
| Fair
|
Security Type
| Cost
| Gain
| (Loss)
| Value
| Cost
| Gain
| (Loss)
| Value
| Cost
| Gain
| (Loss)
| Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper
| $ -
| $ -
| $ -
| $ -
| $ -
| $ -
| $ -
| $ -
| $ 375,228
| $ 1,982
| $ -
| $ 377,210
|
Tax Exempt
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
|
|
|
|
| -
| -
| -
| -
| 8,588
| 308
| (19)
| 8,877
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
| 22,128
| 77
| (1,216)
| 20,989
| 42,165
| 31
| (1,249)
| 40,947
| 52,103
| 90
| (108)
| 52,085
|
Other
| 3,580
| -
| -
| 3,580
| 3,353
| -
| -
| 3,353
| 15,233
| -
| -
| 15,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $25,708
| $ 77
| $ (1,216)
| $24,569
| $ 45,518
| $ 31
| $ (1,249)
| $ 44,300
| $ 451,152
| $ 2,380
| $ (127)
| $ 453,405
|
Using the specific identification method to determine cost, the gross realized gains and gross realized losses were:
(In thousands of dollars)
| Quarter
|
|
|
|
| Ended
|
|
|
|
| March 31,
| Year ended December 31,
|
| 2002
| 2001
| 2000
| 1999
|
|
|
|
|
|
Realized gains
| $ -
| $ 258
| $ 1,993
| $ 26,609
|
Realized losses
| -
| 115
| 26
| 15,140
|
The instruments open at March 31, 2002 in the trust fund for certain pension benefits are all equity type securities and do not have contractual maturity dates.
NOTE 10. STOCK BASED COMPENSATION
Under Holdings’ stock compensation plans, stock units and stock appreciation rights (“SARs”) were granted to officers, key employees and directors. In addition, Holdings’ plans previously allowed for the grant of stock options to officers. The table below sets forth the activity under Holdings’ stock compensation plans for the years January 1, 1999 through March 31, 2002. On March 18, 1999, Niagara Mohawk’s common stock was exchanged for Holdings’ common stock and the SARs, the stock units and the options were likewise exchanged. See Note 1. On January 31, 2002, the acquisition of Holdings by National Grid was completed. See Note 2.
|
|
|
| Options
|
|
|
|
| Wtd. Avg.
|
|
|
|
| Exercise
|
| SARs*
| Units
| Options
| Price
|
|
|
|
|
|
Outstanding at December 31, 1998
| 2,739,700
| 933,439
| 286,583
| $ 17.87
|
Granted
| 253,200
| 148,531
| -
|
|
Exercised
| (5,500)
| (173,991)
| -
|
|
Forfeited
| (134,838)
| (42,985)
| (39,208)
| 18.56
|
Outstanding at December 31, 1999
| 2,852,562
| 864,994
| 247,375
| 17.76
|
Granted
| 574,500
| 647,049
| -
|
|
Exercised
| (44,700)
| (478,470)
| -
|
|
Forfeited
| (29,500)
| (29,097)
| (54,000)
| 17.94
|
Outstanding at December 31, 2000
| 3,352,862
| 1,004,476
| 193,375
| 17.71
|
Granted
| -
| 662,281
| -
|
|
Exercised
| (190,611)
| (336,423)
| -
|
|
Forfeited
| (5,347)
| (21,337)
| -
| -
|
Outstanding at December 31, 2001
| 3,156,904
| 1,308,997
| 193,375
| 17.50
|
Granted
| -
| -
| -
|
|
Exercised
| (1,438,545)
| (1,044,997)
| (102,625)
|
|
Forfeited
| (2,400)
| (264,000)
| (90,750)
| 17.50
|
Outstanding at January 31, 2002
| 1,715,959
| -
| -
| -
|
Conversion of Holdings' stock to ADSs
| (709,817)
|
|
|
|
Granted
| -
|
|
|
|
Exercised
| (46,257)
|
|
|
|
Forfeited
| -
|
|
|
|
Outstanding at March 31, 2002
| 959,885
| -
| -
| -
|
|
|
|
|
|
* Note: The SARs related to Holdings' stock prior to the merger and ADSs subsequent
|
to the merger on January 31, 2002.
|
|
|
|
Stock units were normally payable in cash at the end of a defined vesting period, determined at the date of the grant, based upon Holdings’ stock price for a defined period. SARs normally became exercisable, as determined at the grant date and are payable in cash based upon the increase in Holdings’ stock price from a specified level prior to the merger date.
Niagara Mohawk's SARs and Units provided for the acceleration of the vesting period upon the occurrence of certain events relating to a change in control, merger, sale of assets or liquidation of the company. The units were paid upon the closing of the merger. However, outstanding SARs remain exercisable subsequent to the Merger Effective Date. As a result, upon the closing of the merger there were no Units outstanding, but SARs remain exercisable through the balance of their exercise period. Options granted over the period 1992 to 1995 were exercisable with expirations ten years from the grant date. Upon the closing of the merger, each stock option outstanding was cancelled and entitled the holder to receive an amount in cash. See Note 2 for further information regarding the merger.
On January 31, 2002 outstanding Niagara Mohawk SARs were converted to National Grid ADS SARs. The SARs are payable in cash based upon the increase in the ADS’s stock price from a specified level. As such, for these awards, compensation expense is recognized based upon the value of Holdings’ or ADS’s stock price over the vesting period of the award.
Included in Niagara Mohawk’s results of operations for the three months ended March 31, 2002 and the years ending 2001, 2000 and 1999, is approximately $20.8 million, $11.6 million, $11.0 million and $1.4 million, respectively, related to these plans.
Since stock units and SARs are payable in cash, the accounting under APB No. 25 and SFAS No. 123 is the same. Therefore, the pro forma disclosure of information regarding net income, as required by SFAS No. 123, related only to Holdings’ outstanding stock options, the effect of which is immaterial to the financial statements for the 30 day period ended January 30, 2002, and the years ended 2001, 2000 and 1999. There were no outstanding stock options subsequent to the closing of the merger.
NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating revenues, operating income (loss), income (loss) before extraordinary item and net income (loss) by quarters from 2002, 2001, 2000 and 1999, respectively, are shown in the following table. Niagara Mohawk, in its opinion, has included all adjustments necessary for a fair presentation of the results of operations for the quarters. Due to the seasonal nature of the regulated utility business, the annual amounts are not generated evenly by quarter during the year. Niagara Mohawk’s quarterly results of operations reflect the seasonal nature of its business, with peak electric loads in summer and winter periods. Gas sales peak in the winter.
The following quarterly financial data has been restated from that which was previously reported. Refer to Note 12 for discussion of the restatements. The quarterly impact of each of the restatements on the respective quarterly accounts is presented as notes to each detailed quarterly table below.
Niagara Mohawk Power Corporation
|
|
|
|
|
|
|
| In thousands of dollars
|
|
|
|
| Net
|
|
| Operating
| Operating
| Income
|
|
| Revenues
| Income (Loss)
| (Loss)
|
Quarter Ended
|
| RESTATED
| RESTATED
| RESTATED
|
December 31,
| 2001
| $ 982,963
| $ 110,911
| $ (1,851)
|
| 2000
| 975,315
| 39,616
| (45,040)
|
September 30,
| 2001
| $ 1,007,839
| $ 17,101
| $ 11,848
|
| 2000
| 909,537
| 128,692
| 11,914
|
June 30,
| 2001
| $ 944,205
| $ 73,279
| $ (24,648)
|
| 2000
| 907,204
| 77,452
| (14,020)
|
March 31,
| 2001
| $ 1,179,706
| $ 157,136
| $ 34,009
|
| 2000
| 1,073,893
| 185,019
| 19,500
|
Niagara Mohawk Power Corporation
|
|
| In thousands of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
|
|
|
|
| Operating
|
| Operating
|
| Income
|
|
Quarter nded
|
|
| Revenues
|
| Income (Loss)
|
| (Loss)
|
|
December 31,
| 2001
| As Reported
| $ 987,588
|
| $ 115,107
|
| $ 2,163
|
|
| 2001
| RESTATED
| 982,963
| (a)
| 110,911
| (a), (c)
| (1,851)
| (a), (c)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
| 2000
| As Reported
| 975,315
|
| 39,696
|
| (43,706)
|
|
| 2000
| RESTATED
| 975,315
|
| 39,616
| (c), (d)
| (45,040)
| (c), (d)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
|
|
| 2001
| 2000
|
|
|
|
|
(a) - Revenue deferral reconciliation
| $ (4,625)
| $ -
|
|
|
|
|
(c) - Injuries and damages
| 429
| (621)
|
|
|
|
|
(d) - PSC Settlement-operating
| -
| 541
|
|
|
|
|
(e) - PSC Settlement-nonoperating
| (2,494)
| (2,142)
|
|
|
|
|
(f) - Taxes associated with adjustments
| 2,676
| 888
|
|
|
|
|
For further information on these adjustments see Note 12 "Restatement of Financial Statements"
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
|
| Operating
|
| Income
|
|
Quarter nded
|
|
| Revenues
|
| Income (Loss)
|
| (Loss)
|
|
September 30,
| 2001
| As Reported
| $ 1,009,946
|
| $ 18,779
|
| $ 14,351
|
|
| 2001
| RESTATED
| 1,007,839
| (a)
| 17,101
| (a), (c)
| 11,848
| (a), (c)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
| 2000
| As Reported
| 909,537
|
| 128,772
|
| 13,247
|
|
| 2000
| RESTATED
| 909,537
|
| 128,692
| (c), (d)
| 11,914
| (c), (d)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
|
|
| 2001
| 2000
|
|
|
|
|
(a) - Revenue deferral reconciliation
| $ (2,107)
| $ -
|
|
|
|
|
(c) - Injuries and damages
| 429
| (621)
|
|
|
|
|
(d) - PSC Settlement-operating
| -
| 541
|
|
|
|
|
(e) - PSC Settlement-nonoperating
| (2,494)
| (2,142)
|
|
|
|
|
(f) - Taxes associated with adjustments
| 1,669
| 889
|
|
|
|
|
For further information on these adjustments see Note 12 "Restatement of Financial Statements"
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| In thousands of dollars
|
|
|
|
| Operating
|
| Operating
|
| Income
|
|
Quarter Ended
|
|
| Revenues
|
| Income (Loss)
|
| (Loss)
|
|
June 30,
| 2001
| As Reported
| $ 946,151
|
| $ 74,796
|
| $ (22,242)
|
|
| 2001
| RESTATED
| 944,205
| (a)
| 73,279
| (a), (c)
| (24,648)
| (a), (c)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
| 2000
| As Reported
| 907,204
|
| 77,532
|
| (12,686)
|
|
| 2000
| RESTATED
| 907,204
|
| 77,452
| (c), (d)
| (14,020)
| (c), (d)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
|
|
| 2001
| 2000
|
|
|
|
|
(a) - Revenue deferral reconciliation
| $ (1,946)
| $ -
|
|
|
|
|
(c) - Injuries and damages
| 429
| (621)
|
|
|
|
|
(d) - PSC Settlement-operating
| -
| 541
|
|
|
|
|
(e) - PSC Settlement-nonoperating
| (2,494)
| (2,142)
|
|
|
|
|
(f) - Taxes associated with adjustments
| 1,605
| 888
|
|
|
|
|
For further information on these adjustments see Note 12 "Restatement of Financial Statements"
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
|
| Operating
|
| Income
|
|
Quarter Ended
|
|
| Revenues
|
| Income (Loss)
|
| (Loss)
|
|
March 31,
| 2001
| As Reported
| 1,179,706
|
| 156,707
|
| 35,249
|
|
| 2001
| RESTATED
| 1,179,706
|
| 157,136
| (c)
| 34,009
| (c), (d)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
| 2000
| As Reported
| 1,073,893
|
| 185,100
|
| 20,833
|
|
| 2000
| RESTATED
| 1,073,893
|
| 185,020
| (c), (d)
| 19,500
| (c), (d)
|
|
|
|
|
|
|
|
| (e), (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2001
| 2000
|
|
|
|
|
(a) - Revenue deferral reconciliation
| $ -
| $ -
|
|
|
|
|
(c) - Injuries and damages
| 429
| (621)
|
|
|
|
|
(d) - PSC Settlement-operating
| -
| 541
|
|
|
|
|
(e) - PSC Settlement-nonoperating
| (2,494)
| (2,142)
|
|
|
|
|
(f) - Taxes associated with adjustments
| 825
| 889
|
|
|
|
|
For further information on these adjustments see Note 12 "Restatement of Financial Statements"
|
|
|
Note 12. Restatement of Financial Statements
Subsequent to the acquisition of Holdings by National Grid Group plc, Niagara Mohawk identified certain matters in the application of generally accepted accounting principles in the pre-acquisition accounts of Niagara Mohawk which required Niagara Mohawk to restate its consolidated financial statements as of December 31, 1998 and for each of the three years in the period ended December 31, 2001, as well as for the thirty day period ended January 30, 2002 and the sixty day period ended March 31, 2002. The restatement reflects adjustments pertaining to (i) regulatory liabilities associated with certain account reconciliations and related carrying charges, (ii) a regulatory asset and (iii) uninsured claims. A description of each of the adjustments follows:
Regulatory liabilities: Primarily during years prior to 1999, Niagara Mohawk should have recorded certain net regulatory liabilities to customers in connection with reconciliations of revenues received to costs incurred pursuant to New York State Public Service Commission (the “Commission”) requirements. Additionally, beginning in 1995, Niagara Mohawk failed to record a regulatory liability for interest charges on internal reserves for funding required to employee benefit plans consistent with the Commission’s Statement of Policy and Order Concerning the Accounting and Ratemaking Treatment for Pensions and Postretirement Benefits Other than Pensions, Case No. 91-M-0890 (September 7, 1993).
These net adjustments to regulatory liabilities result in a net decrease in pre-tax income of $19 million in 2001, $6 million in 2000 and $8 million in 1999, as well as an after-tax reduction of retained earnings of $47 million at December 31, 1998.
Regulatory asset: Niagara Mohawk had recorded a regulatory asset of $27 million in connection with the establishment of a portion of its allowance for doubtful accounts. This regulatory asset was primarily recorded during periods prior to 1999. In hindsight, it does not appear that there was a basis to consider this balance probable of recovery. Eliminating this regulatory asset reduces pre-tax income by $2 million in 1999. Additionally, this adjustment results in an after-tax reduction to retained earnings of $16 million at December 31, 1998.
Uninsured claims liability: In the pre-acquisition period, Niagara Mohawk did not record an accrual for the estimated uninsured claims liability. Niagara Mohawk considered these estimated claims to be probable of payment at each of the respective period ends, but accounted for them on a cash basis of payments as opposed to accrual accounting. As of December 31, 1998, this liability should have been $10 million. Recording this liability increases pre-tax income in 2001 by $2 million and decreases pre-tax income by $2 million in both 2000 and 1999 and reduces after-tax retained earnings by $7 million at December 31, 1998.
The following table presents the effects of the aforementioned adjustments on the statements of operations and balance sheets of Niagara Mohawk for each of the respective periods.
At March 31, 2002
| Previously
|
|
|
|
| As
|
(in 000's)
| Reported
|
| Adjustments
|
|
| Restated
|
|
|
|
|
|
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
| 1,145,608
|
| 85,155
| (a)
|
| 1,230,763
|
|
|
|
|
|
|
|
|
Cash
|
| 31,455
|
| (21,573)
| (b)
|
| 9,882
|
|
|
|
|
|
|
|
|
Restricted Cash
| -
|
| 8,082
| (b)
|
| 8,082
|
|
|
|
|
|
|
|
|
Accounts Receivable
| 543,592
|
| (8,678)
| (c)
|
| 534,914
|
|
|
|
|
|
|
|
|
| Total Current Assets
| 668,893
|
| (22,169)
| (x)
|
| 646,724
|
|
|
|
|
|
|
|
|
Regulatory tax asset
| 208,556
|
| (4,651)
| (d)
|
| 203,905
|
|
|
|
|
|
|
|
|
Regulatory Assets--Other
| 258,491
|
| (27,100)
| (e)
|
| 231,391
|
|
|
|
|
|
|
|
|
| Total Regulatory Assets
| 5,243,666
|
| (31,751)
| (x)
|
| 5,211,915
|
|
|
|
|
|
|
|
|
| Total Assets
| 12,020,649
|
| 31,235
| (x)
|
| 12,051,884
|
|
|
|
|
|
|
|
|
Accounts Payable
| 253,168
|
| (13,491)
| (b)
|
| 239,677
|
|
|
|
|
|
|
|
|
Current Liabilities--Other
| 125,967
|
| (1,112)
| (f)
|
| 124,855
|
|
|
|
|
|
|
|
|
| Total Current Liabilities
| 1,473,215
|
| (14,603)
| (x)
|
| 1,458,612
|
|
|
|
|
|
|
|
|
Regulatory and other liabilities--Accumulated
|
|
|
|
|
|
|
| deferred income taxes
| 1,109,328
|
| (50,800)
| (d)
|
| 1,058,528
|
|
|
|
|
|
|
|
|
Regulatory and other liabilities--Other
| 555,009
|
| 87,043
| (c)
|
| 651,647
|
|
|
|
| 9,595
| (f)
|
|
|
|
|
|
|
|
|
|
|
| Total Regulatory and other liabilities
| 3,063,679
|
| 45,838
| (x)
|
| 3,109,517
|
|
|
|
|
|
|
|
|
| Total Liabilities and Shareholder's Equity
| 12,020,649
|
| 31,235
| (x)
|
| 12,051,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) -
| Cumulative effect of adjustments on goodwill balance
| (e) -
| Regulatory asset write-off
|
(b) -
| Reclassification to conform with current year presentation
| (f) -
| Injuries and damages
|
|
(c) -
| Regulatory liability adjustment
|
| (x)
| Subtotal, see above adjustments
|
(d) -
| Tax effect on adjustments
|
|
|
|
|
|
|
Three Months ended March 31, 2001 (unaudited)
| Previously
|
|
|
|
| As
|
(in 000's)
| Reported
|
| Adjustments
|
|
| Restated
|
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations and Maintenance Expense
| $ 248,625
|
| (429)
| (a)
|
| $ 248,196
|
|
|
|
|
|
|
|
|
| Total Operating Expenses
| 1,022,999
|
| (429)
| (x)
|
| 1,022,570
|
|
|
|
|
|
|
|
|
| Operating Income
| 156,707
|
| 429
| (x)
|
| 157,136
|
|
|
|
|
|
|
|
|
| Income (loss) before interest charges
| 155,918
|
| 429
| (x)
|
| 156,347
|
|
|
|
|
|
|
|
|
Interest charges
| 102,895
|
| 2,494
| (b)
|
| 105,389
|
|
|
|
|
|
|
|
|
| Income (loss) before income taxes
| 53,023
|
| (2,065)
| (x)
|
| 50,958
|
|
|
|
|
|
|
|
|
Income Tax Expense
| 17,774
|
| (826)
| (c)
|
| 16,948
|
|
|
|
|
|
|
|
|
| Net Income (Loss)
| 35,249
|
| (1,239)
| (x)
|
| 34,010
|
|
|
|
|
|
|
|
|
| Balance available for common stock
| 27,491
|
| (1,239)
| (x)
|
| 26,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) -
| Injuries and damages
|
|
|
|
|
|
|
(b) -
| Regulatory liability adjustment
|
|
|
|
|
|
|
(c) -
| Income tax associated with adjustments
|
|
|
|
|
|
|
(x) -
| Subtotal, see above adjustments
|
|
|
|
|
|
|
Year ended December 31, 2001
| Previously
|
|
|
|
| As
|
(in 000's)
| Reported
|
| Adjustments
|
|
| Restated
|
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Operating Revenues
| $3,401,890
|
| $ (8,678)
| (a)
|
| $3,393,212
|
|
|
|
|
|
|
|
|
| Total Operating Revenues
| 4,123,391
|
| (8,678)
| (x)
|
| 4,114,713
|
|
|
|
|
|
|
|
|
Other Operations and Maintenance Expense
| 954,568
|
| (1,715)
| (b)
|
| 952,853
|
|
|
|
|
|
|
|
|
| Total Operating Expenses
| 3,758,002
|
| (1,715)
| (x)
|
| 3,756,287
|
|
|
|
|
|
|
|
|
| Operating Income
| 365,389
|
| (6,963)
| (x)
|
| 358,426
|
|
|
|
|
|
|
|
|
| Income (loss) before interest charges
| 349,831
|
| (6,963)
| (x)
|
| 342,868
|
|
|
|
|
|
|
|
|
Interest Expense
| 392,406
|
| 9,976
| (c)
|
| 402,382
|
|
|
|
|
|
|
|
|
| Income (loss) before income taxes
| (42,575)
|
| (16,939)
| (x)
|
| (59,514)
|
|
|
|
|
|
|
|
|
Income Tax Expense
| (72,096)
|
| (6,776)
| (d)
|
| (78,872)
|
|
|
|
|
|
|
|
|
| Net Income (Loss)
| 29,521
|
| (10,163)
| (x)
|
| 19,358
|
|
|
|
|
|
|
|
|
| Balance available for common stock
| (1,329)
|
| (10,163)
| (x)
|
| (11,492)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) -
| Regulatory liability adjustment
|
|
|
|
|
|
|
(b) -
| Injuries and damages
|
|
|
|
|
|
|
(c) -
| Regulatory liability adjustment
|
|
|
|
|
|
|
(d) -
| Taxes associated with adjustments
|
|
|
|
|
|
|
(x) -
| Subtotal, see above adjustments
|
|
|
|
|
|
|
At December 31, 2001
| Previously
|
|
|
|
| As
|
(in 000's)
| Reported
|
| Adjustments
|
|
| Restated
|
|
|
|
|
|
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
| 125,979
|
| (28,745)
| (a)
|
| 97,234
|
|
|
|
|
|
|
|
|
Restricted Cash
| -
|
| 28,745
| (a)
|
| 28,745
|
|
|
|
|
|
|
|
|
Accounts Receivable
| 390,277
|
| (8,678)
| (b)
|
| 381,599
|
|
|
|
|
|
|
|
|
| Total Current Assets
| 650,037
|
| (8,678)
| (x)
|
| 641,359
|
|
|
|
|
|
|
|
|
Regulatory Assets--Regulatory Tax Asset
| 179,809
|
| (4,651)
| (c)
|
| 175,158
|
|
|
|
|
|
|
|
|
Regulatory Assets--Other
| 301,531
|
| (27,100)
| (d)
|
| 274,431
|
|
|
|
|
|
|
|
|
| Total Regulatory Assets
| 5,826,765
|
| (31,751)
| (x)
|
| 5,795,014
|
|
|
|
|
|
|
|
|
| Total Assets
| 11,476,983
|
| (40,429)
| (x)
|
| 11,436,554
|
|
|
|
|
|
|
|
|
Retained Earnings
| 260,617
|
| (93,573)
| (e)
|
| 167,044
|
|
|
|
|
|
|
|
|
| Total Common equity
| 2,386,998
|
| (93,573)
| (x)
|
| 2,293,425
|
|
|
|
|
|
|
|
|
| Total Capitalization
| 7,284,929
|
| (93,573)
| (x)
|
| 7,191,356
|
|
|
|
|
|
|
|
|
Current Liabilities--Other
| 145,688
|
| 3,500
| (f)
|
| 149,188
|
|
|
|
|
|
|
|
|
| Total Current Liabilities
| 1,037,882
|
| 3,500
| (x)
|
| 1,041,382
|
|
|
|
|
|
|
|
|
Regulatory and other liabilities--Accumulated
|
|
|
|
|
|
|
| deferred income taxes
| 1,457,875
|
| (57,022)
| (c)
|
| 1,400,853
|
|
|
|
|
|
|
|
|
Regulatory and other liabilities--Other
| 386,182
|
| 106,666
| (b)
|
| 492,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Regulatory and other liabilities
| 2,849,172
|
| 49,644
| (x)
|
| 2,898,816
|
|
|
|
|
|
|
|
|
| Total Liabilities and Shareholder's Equity
| 11,476,983
|
| (40,429)
| (x)
|
| 11,436,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) -
| Reclassification to conform with current year presentation
| (e) -
| Cumulative affect of adjustments
|
(b) -
| Regulatory liability adjustment
|
| (f) -
| Injuries and damages
|
|
(c) -
| Taxes associated with adjustments
|
| (x) -
| Subtotal, see above adjustments
|
(d) -
| Regulatory asset write-off
|
|
|
|
|
|
|
Year ended December 31, 2000
| Reported
|
|
|
|
| As
|
(in 000's)
| (1)
|
| Adjustments
|
|
| Restated
|
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations and Maintenance Expense
| $ 888,067
|
| $ (2,167)
| (a)
|
| $ 888,387
|
|
|
|
| 2,487
| (b)
|
|
|
|
|
|
|
|
|
|
|
| Total Operating Expenses
| 3,434,849
|
| 320
| (x)
|
| 3,435,169
|
|
|
|
|
|
|
|
|
| Operating Income
| 431,100
|
| (320)
| (x)
|
| 430,780
|
|
|
|
|
|
|
|
|
| Income (loss) before interest charges
| 404,947
|
| (320)
| (x)
|
| 404,627
|
|
|
|
|
|
|
|
|
Interest Expense
| 437,274
|
| 8,568
| (a)
|
| 445,842
|
|
|
|
|
|
|
|
|
| Income (loss) before income taxes
| (32,327)
|
| (8,888)
| (x)
|
| (41,215)
|
|
|
|
|
|
|
|
|
Income tax expense
| (10,015)
|
| (3,554)
| (c)
|
| (13,569)
|
|
|
|
|
|
|
|
|
| Net Income (Loss)
| (22,312)
|
| (5,334)
| (x)
|
| (27,646)
|
|
|
|
|
|
|
|
|
| Balance available for common stock
| (53,749)
|
| (5,334)
| (x)
|
| (59,083)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
| Amounts have been adjusted to reflect the reclassification of gains associated with the extinguishments
|
| of debt. See Note 13 "Extraordinary Loss Reclassification Adjustment" in Notes to Consolidated
|
| Financial Statements for additional information.
|
|
|
|
|
|
(a) -
| Regulatory liability adjustment
|
|
|
|
|
|
|
(b) -
| Injuries and damages
|
|
|
|
|
|
|
(c) -
| Taxes associated with adjustments
|
|
|
|
|
|
|
(x) -
| Subtotal, see above adjustments
|
|
|
|
|
|
|
At December 31, 2000
| Previously
|
|
|
|
| As
|
(in 000's)
| Reported
|
| Adjustments
|
|
| Restated
|
|
|
|
|
|
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
| 77,070
|
| (10,946)
| (a)
|
| 66,124
|
|
|
|
|
|
|
|
|
Restricted Cash
| -
|
| 10,946
| (a)
|
| 10,946
|
|
|
|
|
|
|
|
|
| Total Current Assets
| 697,978
|
| -
| (x)
|
| 697,978
|
|
|
|
|
|
|
|
|
Regulatory Assets--Regulatory Tax Asset
| 408,303
|
| (4,651)
| (b)
|
| 403,652
|
|
|
|
|
|
|
|
|
Regulatory Assets--Other
| 191,524
|
| (27,100)
| (c)
|
| 164,424
|
|
|
|
|
|
|
|
|
| Total Regulatory Assets
| 5,316,007
|
| (31,751)
| (x)
|
| 5,284,256
|
|
|
|
|
|
|
|
|
| Total Assets
| 12,302,075
|
| (31,751)
| (x)
|
| 12,270,324
|
|
|
|
|
|
|
|
|
Retained Earnings
| 299,106
|
| (83,410)
| (d)
|
| 215,696
|
|
|
|
|
|
|
|
|
| Total Common equity
| 2,434,223
|
| (83,410)
| (x)
|
| 2,350,813
|
|
|
|
|
|
|
|
|
| Total Capitalization
| 7,591,354
|
| (83,410)
| (x)
|
| 7,507,944
|
|
|
|
|
|
|
|
|
Current Liabilities--Other
| 150,427
|
| 3,500
| (e)
|
| 153,927
|
|
|
|
|
|
|
|
|
| Total Current Liabilities
| 1,464,198
|
| 3,500
| (x)
|
| 1,467,698
|
|
|
|
|
|
|
|
|
Regulatory and other liabilities--Accumulated
|
|
|
|
|
|
|
| deferred income taxes
| 1,479,032
|
| (50,246)
| (c)
|
| 1,428,786
|
|
|
|
|
|
|
|
|
Regulatory and other liabilities--Other
| 419,288
|
| 87,095
| (f)
|
| 517,693
|
|
|
|
| 11,310
| (e)
|
|
|
|
|
|
|
|
|
|
|
| Total Regulatory and other liabilities
| 2,961,523
|
| 48,159
| (x)
|
| 3,009,682
|
|
|
|
|
|
|
|
|
| Total Liabilities and Shareholder's Equity
| 12,302,075
|
| (31,751)
| (x)
|
| 12,270,324
|
|
|
|
|
|
|
|
|
(a) -
| Reclassification to conform with current year presentation
| (e) -
| Injuries and damages
|
|
(b) -
| Taxes associated with adjustments
|
| (f) -
| Regulatory liability adjustment
|
(c) -
| Regulatory asset write-off
|
| (x) -
| Subtotal, see above adjustments
|
(d) -
| Cumulative effect of adjustments
|
|
|
|
|
|
|
|
| Previously
|
|
|
|
|
|
Year ended December 31, 1999
| Reported
|
|
|
|
| As
|
(in 000's)
| (1)
|
| Adjustments
|
|
| Restated
|
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations and Maintenance Expense
| $ 911,746
|
| $ 1,900
| (a)
|
| $ 915,691
|
|
|
|
| 2,045
| (b)
|
|
|
|
|
|
|
|
|
|
|
| Total Operating Expenses
| 3,295,789
|
| 3,945
| (x)
|
| 3,299,734
|
|
|
|
|
|
|
|
|
| Operating Income
| 531,551
|
| (3,945)
| (x)
|
| 527,606
|
|
|
|
|
|
|
|
|
| Income (loss) before interest charges
| 489,386
|
| (3,945)
| (x)
|
| 485,441
|
|
|
|
|
|
|
|
|
Interest Expense
| 485,240
|
| 7,747
| (b)
|
| 492,987
|
|
|
|
|
|
|
|
|
| Income (loss) before income taxes
| 4,146
|
| (11,692)
| (x)
|
| (7,546)
|
|
|
|
|
|
|
|
|
Income Tax Expense
| 6,207
|
| (4,092)
| (c)
|
| 2,115
|
|
|
|
|
|
|
|
|
| Net Income (Loss)
| (2,061)
|
| (7,600)
| (x)
|
| (9,661)
|
|
|
|
|
|
|
|
|
| Balance available for common stock
| (38,869)
|
| (7,600)
| (x)
|
| (46,469)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
| Amounts have been adjusted to reflect the reclassification of gains associated with the extinguishments
|
| of debt. See Note 13 "Extraordinary Loss Reclassification Adjustment" in Notes to Consolidated
|
| Financial Statements for additional information.
|
|
|
|
|
|
(a) -
| Regulatory asset write-off
|
|
|
|
|
|
|
(b) -
| Injuries and damages
|
|
|
|
|
|
|
(c) -
| Taxes associated with adjustments
|
|
|
|
|
|
|
(x) -
| Subtotal, see above adjustments
|
|
|
|
|
|
|
Note 13. Extraordinary Loss Reclassification Adjustment
On April 1, 2002 Niagara Mohawk adopted the provisions of Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). The applicable portion of this Statement rescinds Statement of Financial Accounting Standards No. 4 Reporting Gains and Losses from Extinguishment of Debt which required all gains and losses from extinguishment of debt to be aggregated and, when material, classified as an extraordinary item, net of related income tax effect. Accordingly, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented and does not meet the criteria in APB Opinion No. 30 Reporting the Results of Operations-Reporting the Effects of Disposal of a segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions for classification as an extraordinary item was reclassified to Other Income (Deductions). The effect of this reclassification in the accompanying Consolidated Statements of Operations was a decrease to Other Income (Deductions) of $1.4 million and $36.6 million and a decrease to income taxes of $0.5 million and $12.8 million, from amounts previously reported, for the years ended December 31, 2000 and 1999, respectively.
ELECTRIC STATISTICS (Unaudited)
| Quarter Ended
| Quarter Ended
|
|
|
|
| March 31,
| March 31,
| Year Ended December 31,
|
| 2002
| 2001
| 2001
| 2000
| 1999
|
|
|
|
|
|
|
|
|
| (millions of KWh)
|
Electric sales:
|
|
|
|
|
|
Residential
| 2,687
| 2,798
| 9,835
| 9,840
| 10,227
|
Commercial
| 2,352
| 2,550
| 9,896
| 10,051
| 11,838
|
Industrial
| 1,186
| 1,428
| 5,416
| 5,934
| 6,985
|
Industrial-Special
| 949
| 1,116
| 4,653
| 4,285
| 4,506
|
Other
| 43
| 45
| 155
| 167
| 200
|
Distribution of energy (delivery only)
| 1,103
| 946
| 3,908
| 4,012
| 1,334
|
Other electric systems
| 1,100
| 435
| 6,068
| 2,017
| 1,666
|
Total electric sales
| 9,420
| 9,318
| 39,931
| 36,306
| 36,756
|
|
|
|
|
|
|
|
|
| (thousands of dollars)
|
Electric revenues:
|
|
|
|
|
|
Residential
| $ 328,357
| $ 326,209
| $ 1,202,676
| $ 1,187,151
| $ 1,250,295
|
Commercial
| 246,878
| 261,183
| 1,061,871
| 1,033,783
| 1,192,390
|
Industrial
| 89,157
| 111,264
| 448,277
| 453,430
| 485,009
|
Industrial-Special
| 14,188
| 16,382
| 65,393
| 62,805
| 65,178
|
Other
| 9,543
| 4,812
| 31,189
| 39,765
| 50,294
|
Other electric systems
| 29,338
| 28,451
| 230,960
| 112,970
| 47,851
|
Distribution of energy
| 57,169
| 37,972
| 176,896
| 179,821
| 56,068
|
Transmission of energy
| 35,501
| 44,059
| 128,560
| 117,269
| 100,455
|
Miscellaneous
| 12,558
| (6,766)
| 47,390
| 20,453
| 217
|
Total electric revenue
| $ 822,689
| $ 823,566
| $ 3,393,212
| $ 3,207,447
| $ 3,247,757
|
|
|
|
|
|
|
Electric customers (average)
| 1,529,083
| 1,521,258
| 1,524,162
| 1,532,140
| 1,550,225
|
GAS STATISTICS (Unaudited)
| Quarter Ended
| Quarter Ended
|
|
|
|
| March 31,
| March 31,
| Year Ended December 31,
|
| 2002
| 2001
| 2001
| 2000
| 1999
|
|
|
|
|
|
|
|
|
| (thousands of Dth)
|
Gas sales:
|
|
|
|
|
|
Residential
| 20,751
| 26,437
| 48,896
| 54,299
| 51,624
|
Commercial
| 6,967
| 8,122
| 14,791
| 16,193
| 16,505
|
Industrial
| 123
| 201
| 394
| 493
| 453
|
Total sales
| 27,841
| 34,760
| 64,081
| 70,985
| 68,582
|
Other gas systems
| 5
|
| 12
| 13
| 10
|
Spot market
| -
| -
| -
| 592
| 1,834
|
Transportation of customer - -
|
|
|
|
|
|
owned gas
| 32,417
| 32,951
| 125,773
| 140,127
| 137,240
|
Total gas delivered
| 60,263
| 67,711
| 189,866
| 211,717
| 207,666
|
|
|
|
|
|
|
Gas revenues:
|
|
|
|
|
|
Residential
| $ 154,192
| $ 250,117
| $ 491,713
| $ 457,929
| $ 390,208
|
Commercial
| 49,926
| 80,219
| 141,931
| 126,853
| 107,669
|
Industrial
| 749
| 1,715
| 3,166
| 3,037
| 2,340
|
Other gas systems
| 29
| 6
| 84
| 105
| 57
|
Spot market
| -
| -
| -
| 1,604
| 4,277
|
Transportation of customer - -
|
|
|
|
|
|
owned gas
| 22,331
| 16,116
| 58,924
| 62,350
| 58,032
|
Miscellaneous
| 2,410
| 7,967
| 25,683
| 6,624
| 17,000
|
Total gas revenues
| $ 229,637
| $ 356,140
| $ 721,501
| $ 658,502
| $ 579,583
|
|
|
|
|
|
|
Gas customers (average)
| 553,072
| 549,525
| 548,007
| 544,070
| 541,956
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Niagara Mohawk has nothing to report for this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Presently, the Board of Directors consists of five directors. The names of the directors of Niagara Mohawk Power Corporation, their ages, and a brief account of their business experience during the past five years appear below. Directors are elected to hold office until the next annual meeting of shareholders or special meeting in lieu thereof or until their respective successors are elected and have qualified.
WILLIAM F. EDWARDS
- President of the Company
- Director since 2002
Mr. Edwards, age 45, was elected President of the Company and Senior Vice President of National Grid USA, effective January 31, 2002. Prior to that, he served as Senior Vice President and Chief Financial Officer from 1997-2002 and was Vice President of Financial Planning from 1995-1997. He served as Senior Vice President and Chief Financial Officer of Niagara Mohawk Holdings, Inc. from 1999-2002. He is a Director of National Grid USA and NM Properties, Inc., a wholly-owned subsidiary of the Company. He also serves as Director of Utilities Mutual Insurance Company.
MICHAEL E. JESANIS
• Executive Vice President and Chief Operating Officer of National Grid USA
• Director since 2002
Mr. Jesanis, age 45, Executive Vice President and Chief Operating Officer of National Grid USA since January 31, 2001. Previously, he served as Senior Vice President and Chief Financial Officer of New England Electric System from 1998-2000 and was Vice President from 1997-1998 and Treasurer from 1992-1998. Director of Niagara Mohawk Holdings, Inc. (now a wholly-owned subsidiary of National Grid USA), Opinac North America, Inc. (“Opinac NA”), and Niagara Mohawk Energy, Inc. (“NM Energy”). Opinac NA is a wholly-owned subsidiary of the Niagara Mohawk Holdings, Inc. and holds 100 percent of NM Energy and, through its subsidiary, Opinac Energy Corporation, a 50 percent interest in Canadian Niagara Power Company, Limited.
CLEMENT E. NADEAU
• Senior Vice President of the Company
• Director since 2002
Mr. Nadeau, age 50, was elected Senior Vice President of the Company, effective January 31, 2002. Prior to that, he served as Vice President-Electric Delivery from 1998-2002. Previously, he was Vice President-Marketing and Planning from 1996-1998.
KWONG O. NUEY, JR.
• Vice President and Chief Information Officer of National Grid USA Service Company
• Director since 2002
Mr. Nuey, age 54, was elected Vice President and Chief Information Officer of National Grid USA Service Company, effective January 31, 2002. Previously, he was the Vice President and Controller of National Grid USA Service Company from 2000-2002 and the Vice President and Director of Retail Information Services from 1997-2000.
ANTHONY C. PINI
• Senior Vice President of the Company
• Director since 2002
Mr. Pini, age 49, was elected Senior Vice President of the Company, effective January 31, 2002. Previously, he was President of NEES Communications, Inc. from 1997-2002 and Vice President of Retail Customer Service of National Grid USA subsidiaries from 1993-1997.
The information regarding executive officers appears at the end of Part I of this Form 10-K/A Report.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the SEC require that the Company disclose late filings of reports of ownership and changes in ownership of the Company’s equity securities by its directors, executive officers and any other person subject to Section 16 of the Securities and Exchange Act of 1934. To the best of the Company’s knowledge, there were no late filings during 2002.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows cash and other compensation paid to the President and to each of the other four most highly compensated executive officers of Niagara Mohawk for the first quarter of 2002 and for 1999, 2000, and 2001 for previously reported executive officers. In addition to the four most highly compensated executives, disclosure has been provided for William E. Davis, as former CEO and, David J. Arrington and Darlene D. Kerr as former executive officers, as disclosure for these officers would have been included but for the fact that these individuals were not serving as executive officers of Niagara Mohawk at the end of the fiscal year, March 31, 2002.
SUMMARY COMPENSATION TABLE
Name and Principal Position
|
Year
| Annual Compensation
| Long-Term Compensation
|
All Other Compen-
sation
($)( D)
|
|---|
Salary
($)(A)
|
Bonus
($)
|
Other Annual Compen-sation
($)(B)
| Awards
|
|---|
Restricted Stock Award(s)
($)(C)
|
Securities Underlying Options/SARs
(#)
|
|---|
W. F. Edwards
President
(Elected
January 31, 2002)
| 2002 (E)
2001
2000
1999
| 99,665
379,994
331,663
269,667
| 0
222,716
142,816
38,060
| 0
4,785
0
0
| 0
354,000
425,938
0
| 0
0
25,000
0
| 3,882,601
600,267
80,699
25,646
|
T. H. Baron
Senior Vice President
(Elected October 22, 1998)
| 2002 (E)
2001
2000
1999
| 72,374
278,297
265,001
236,001
| 0
138,752
72,149
28,425
| 531
4,785
111
0
| 0
354,000
425,938
0
| 0
0
25,000
0
| 10,226
968,742
23,459
9,196
|
L. E. LoBaugh, Jr.
Vice President &
General Counsel
(Elected
January 28, 1999)
| 2002 (E)
| 53,824
| 0
| 886
| 0
| 0
| 3,339
|
W. J. Synwoldt
Vice President & Chief Information Officer (Elected
May 7, 1996)
| 2002 (E)
| 82,550
| 0
| 739
| 0
| 0
| 9,828
|
J. M. Russo
Vice President
(Elected June 13, 2000)
| 2002 (E)
| 54,599
| 0
| 0
| 0
| 0
| 94,943
|
W. E. Davis
Chairman and CEO
(End Date
January 31, 2002)
| 2002 (E)
2001
2000
1999
| 99,514
819,985
754,654
652,993
| 0
696,216
592,078
78,580
| 575
4,924
321
0
| 0
1,309,800
1,591,750
| 0
0
90,000
0
| 12,476,545
1,543,647
43,878
39,003
|
D. D. Kerr
President & COO
(End Date
January 31, 2002)
| 2002 (E)
2001
2000
1999
| 90,998
499,991
428,881
345,001
| 0
365,019
164,596
44,190
| 585
4,955
250
0
| 0
725,700
830,563
0
| 0
0
40,000
0
| 3,904,562
3,044,838
15,573
12,317
|
D. J. Arrington
Senior Vice President
(End Date
March 18, 2002)
| 2002 (E)
2001
2000
1999
| 78,364
359,993
319,997
269,667
| 0
231,375
131,144
42,390
| 581
5,032
456
0
| 0
354,000
425,938
0
| 0
0
25,000
0
| 2,549,515
3,957,730
12,085
9,878
|
(A) Includes all employee contributions to the Employees’ Savings Fund Plan.
(B) Other Annual Compensation in 2002 for Messrs. Baron, LoBaugh, Synwoldt, Davis and Arrington and Ms. Kerr, represents amount reimbursed for taxes associated with financial planning services. For Messrs. Davis and Arrington and Ms. Kerr, included are amounts reimbursed for taxes associated with security systems.
(C) In 2002, no stock units were granted to the above named executive officers from the LTIP. In accordance with the terms of the Plan, all outstanding stock units were paid upon the merger with National Grid. The above named executives held no stock units at the end of the fiscal period, March 31, 2002.
(D) Included in All Other Compensation for 2002 are partial payments of benefits accrued under the Niagara Mohawk Supplemental Executive Retirement Plan: Mr. Edwards ($3,188,106), Mr. Davis ($9,021,892), Ms. Kerr ($3,370,201), and Mr. Arrington ($788,654). All Other Compensation for 2002 also includes: employer contributions to the Company’s Employees’ Savings Fund Plan: Mr. Edwards, ($4,990), Mr. Baron ($2,171), Mr. LoBaugh ($2,153), Mr. Synwoldt ($1,396), Mr. Davis ($6,000), Ms. Kerr ($3,900), and Mr. Arrington ($2,351); taxable portion of life insurance premiums: Mr. Edwards ($605), Mr. Baron ($495), Mr. LoBaugh ($1,186), Mr. Russo ($493), Mr. Synwoldt ($872), Mr. Davis ($2,376), Ms. Kerr ($1,221) and Arrington ($753); employer contributions to the Company’s Excess Benefit Plan: Mr. Davis ($397); payments of awards granted under the CEO Special Award Plan: Mr. Edwards ($188,900), Mr. Arrington ($141,675), and Mr. Russo ($94,450); payment of dividend equivalents associated with exercise of stock options granted under the 1992 Stock Option Plan: Mr. Baron ($7,560), Mr. Synwoldt ($7,560), Mr. Davis ($33,880), Ms. Kerr ($9,240), and Mr. Arrington ($15,120); benefits payable in connection with employment agreements: Mr. Edwards ($500,000), Mr. Davis ($3,412,000), Ms. Kerr ($520,000) and Mr. Arrington ($1,600,962).
(E) Information is for the first calendar quarter of 2002 only.
During the first calendar quarter of 2002, no SARs or Stock Options were granted to the above-named officers.
The following tables summarize exercises of options by the President, Mr. William F. Edwards, and the other named executive officers, the number of unexercised SARs and options held by them and the spread (the difference between the current market price of the stock and the exercise price of the SAR or option, to the extent that market price at the end of the year exceeds exercise price) on those unexercised SARs or options for the first calendar quarter of 2002. Outstanding Niagara Mohawk SARs were converted using the Exchange Ratio, as defined in the Merger Agreement, to National Grid ADS SARs on the Merger Effective Date, January 31, 2002.
Aggregated Option/SAR Exercises in First Quarter 2002 and Fiscal Year-End Option/SAR Values
Table 1: Aggregated Option/SAR Exercises in January 2002 [Pre-merger].
Name
|
Options/ SARs Exercised
(#)
|
Value
Realized
($)
| Number of Securities Underlying Unexercised Options/SARs on January 31, 2002 (#)
|
Value of Unexercised Options/SARs on January 31, 2002 ($)(A)
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
W. F. Edwards
| 128,400
| 648,707
| 0
| 0
| 0
| 0
|
T. H. Baron
| 106,900
| 530,463
| 0
| 0
| 0
| 0
|
L. E. LoBaugh, Jr.
| 0
| 0
| 21,000
| 0
| 77,000
| 0
|
W. J. Synwoldt
| 3,000
| 7,545
| 21,000
| 0
| 79,940
| 0
|
J. M. Russo
| 0
| 0
| 21,000
| 0
| 79,940
| 0
|
W. E. Davis
| 449,000
| 3,696,148
| 290,000
| 0
| 1,091,600
| 0
|
D. D. Kerr
| 102,500
| 828,530
| 120,000
| 0
| 456,800
| 0
|
D. J. Arrington
| 71,000
| 470,815
| 65,000
| 0
| 207,350
| 0
|
(A) Calculated based on the closing market price of the Holdings’ common stock on January
31, 2002 ($18.55).
Table 2: Aggregated Option/SAR Exercises in February and March 2002 [Post-merger].
Name
|
Options/ SARs Exercised
(#)
|
Value
Realized
($)
| Number of Securities Underlying Unexercised Options/SARs At Fiscal
Year-End (#)
|
Value of Unexercised Options/SARs At Fiscal
Year-End ($)(A)
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
W. F. Edwards
| 0
| 0
| 0
| 0
| 0
| 0
|
T. H. Baron
| 0
| 0
| 0
| 0
| 0
| 0
|
L. E. LoBaugh, Jr.
| 12,312
| 85,671
| 0
| 0
| 0
| 0
|
W. J. Synwoldt
| 0
| 0
| 12,312
| 0
| 92,997
| 0
|
J. M. Russo
| 12,312
| 84,624
| 0
| 0
| 0
| 0
|
W. E. Davis
| 0
| 0
| 170,024
| 0
| 1,271,897
| 0
|
D. D. Kerr
| 0
| 0
| 70,356
| 0
| 531,422
| 0
|
D. J. Arrington
| 0
| 0
| 38,110
| 0
| 247,715
| 0
|
(A) Calculated based on the closing market price of National Grid Group ADS price on March 28, 2002 ($32.70).
Retirement Benefits and Employment Agreements
Niagara Mohawk Pension Plan
The Niagara Mohawk Pension Plan (“Basic Plan”) is a noncontributory, tax-qualified defined benefit plan and provides all employees of the Company with a minimum retirement benefit. This retirement benefit is related to compensation--that is, base salary or pay--subject to the maximum annual limits noted in the Retirement Benefits Table.
The participant’s Basic Plan retirement benefit is based on one of two formulas depending on age and years of service on July 1, 1998:
the cash balance formula; or
the highest five-year average compensation.
Effective July 1, 1998, the Basic Plan was amended to include a cash balance formula. Under a cash balance formula a participant’s retirement benefit grows with pay credits (four percent - eight percent x salary) plus interest credits on a monthly basis. A non-represented (management) employee who was at least 45 years of age and has 10 years of service on July 1, 1998 or has at least 5 years of service and 50 points (age plus service) as of December 31, 1998 will receive the higher of the 2 formulas--the cash balance formula or the highest consecutive five-year compensation. All other non-represented employees’ Basic Plan benefit will be based on the cash balance formula only. Directors who are not employees are not eligible to participate in the Basic Plan.
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan (“SERP”) is a noncontributory, nonqualified defined benefit plan that provides additional retirement benefits to officers of the Company who have obtained age 55 and who have 20 or more years of employment. Exceptions to the age and service requirements may be granted.
The SERP provides a benefit equal to the greater of:
Sixty percent of base salary averaged over the final 36 months of employment, reduced by benefits payable under the Basic Plan; retirement benefits accrued during previous employment and one-half of the maximum security benefit to which the participant may be entitled at the time of retirement, or benefits payable under the Basic Plan without regard to the annual benefit limitations imposed by the Internal Revenue Code.
Provided certain established criteria are met, participants in the SERP may elect to receive their benefit in a lump sum payment. However, if plan participants cease to be employed by the Company or by National Grid after January 31, 2002 due to the participants involuntary termination or voluntary termination with “good reason,” the SERP benefit will be paid in the form of a lump sum.
The following table shows the maximum retirement benefit (adjusted for Social Security) an officer can earn in aggregate under both the Basic Plan and the SERP.
Annual Retirement Allowance
3-Year Average Annual Salary
| Years of Service
|
10*
|
15*
|
20
|
25
|
30
|
35
|
$150,000
| $ 20,970
| $33,705
| $ 75,000
| $ 75,000
| $ 75,000
| $ 75,000
|
250,000
| 28,220
| 45,330
| 135,000
| 135,000
| 135,000
| 135,000
|
350,000
| 28,220
| 45,330
| 195,000
| 195,000
| 195,000
| 195,000
|
450,000
| 28,220
| 45,330
| 255,000
| 255,000
| 255,000
| 255,000
|
550,000
| 28,220
| 45,330
| 315,000
| 315,000
| 315,000
| 315,000
|
650,000
| 28,220
| 45,330
| 375,000
| 375,000
| 375,000
| 375,000
|
750,000
| 28,220
| 45,330
| 435,000
| 435,000
| 435,000
| 435,000
|
850,000
| 28,220
| 45,330
| 495,000
| 495,000
| 495,000
| 495,000
|
900,000
| 28,220
| 45,330
| 525,000
| 525,000
| 525,000
| 525,000
|
*Basic Plan benefit only.
The benefit calculations assume the officer has selected a straight life annuity and retired on March 31, 2002 at age 65. Annual compensation limits of $200,000 under a tax-qualified plan will reduce the benefit amount collectible under the Basic Plan for some highly compensated officers.
As of March 31, 2002, the persons named in the Summary Compensation Table had the following estimated credited years of benefit service for purposes of the pension program: Mr. Edwards, 23 years; Mr. Baron, 35 years; Mr. LoBaugh, 3 years; Mr. Synwoldt, 10 years; Mr. Russo, 1 year; Mr. Davis, 12 years; Ms. Kerr, 29 years; and Mr. Arrington, 11 years.
While the above table reflects accruals under both the Base Plan and the SERP, effective January 31, 2002, the benefits that participants have accrued in the Niagara Mohawk SERP Plan were frozen. No future benefits will be accrued for participants after this date and all active participants are vested in the plan.
As of March 31, 2002 the follow named executive officers have received distribution of their benefit under the SERP: Messrs. Edwards, Davis and Arrington and Ms. Kerr.
Employment Agreements
Niagara Mohawk entered into employment agreements with Messrs. Edwards, Baron, Davis, Arrington and Ms. Kerr. Messrs. Arrington, Baron, and Davis have received the change of control payments under the employment agreements on the terms outlined for Mr. Edwards below. Ms. Kerr’s employment agreement was terminated and replaced with an agreement with National Grid USA. Mr. Davis also has an agreement with National Grid USA. Mr. Edwards’ agreement will remain in effect for 36 months after January 31, 2002 (completion date of the merger between National Grid and Holdings). If Mr. Edwards’ employment is terminated by Niagara Mohawk without cause or by Mr. Edwards for good reason within 36 months after the completion of the merger, Mr. Edwards will be entitled to a lump sum severance benefit equal to four times his base salary. Mr. Edwards will also be entitled to employee benefit plan coverage for medical, prescription drug, dental and hospitalization benefits and life insurance for the remainder of his life with all related premiums paid by Niagara Mohawk, and coverage under other employee benefit plans will continue for four years. In the event that the payments to Mr. Edwards upon termination of employment would subject Mr. Edwards to the excise tax on excess parachute payments under the Internal Revenue Code, Niagara Mohawk will reimburse him for such excise tax (and the income tax and excise tax on such reimbursement). In the event of a dispute over Mr. Edwards’ rights under the agreement, Niagara Mohawk will pay Mr. Edwards’ reasonable legal fees with respect to the dispute unless Mr. Edwards’ claims are found to be frivolous.
As used in the employment agreements, “good reason” generally means a materially adverse change in duties, reduction in salary or benefits or relocation by more than 50 miles, all as determined by the executive in good faith.
As used in the employment agreements, termination for “cause” generally arises upon willful failure to perform duties, commitment of a felony, gross neglect or willful misconduct resulting in material economic loss to Niagara Mohawk or breach of certain confidentiality and non-compete provisions. “Cause” must be determined by a vote of three-fourths of the Board of Directors after a meeting at which the executive and his or her legal counsel are entitled to be heard.
Niagara Mohawk entered into Change in Control Agreements with Messrs. LoBaugh, Synwoldt and Russo which provide that if, within two years following a change in control, which occurred upon the completion of the merger, an officer terminates his employment for good reason or Niagara Mohawk terminates the officer’s employment without cause, the officer will be entitled to a lump sum severance benefit equal to two times the officer’s base salary plus two years of benefits.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Niagara Mohawk Holdings, Inc. owns 100 percent of the voting securities of Niagara Mohawk Power Corporation. As of January 31, 2002, there were no publicly traded outstanding shares of Holdings common stock due to the completion of the merger with National Grid Group plc. All the shares of Holdings common stock outstanding were exchanged for National Grid shares in the form of American Depositary Shares (ADSs), which are listed on the New York Stock Exchange, and/or cash.
The following table indicates the number of National ADSs beneficially owned as of June 3, 2002, by Niagara Mohawk directors, executive officers named in the Summary Compensation Table, and directors/executive officers of Niagara Mohawk as a group, that were serving as a director and/or officer of Niagara Mohawk as of March 31, 2002.
Title of Class
|
Name of Beneficial Owner
| Amount and Nature of Beneficial Ownership *
| Percent of Class
|
American Depositary Shares
|
|
|
| Director:
|
|
|
| William F. Edwards
| 1,594
| **
|
| Michael E. Jesanis
| 630
| **
|
| Clement E. Nadeau
| 2,999
| **
|
| Anthony C. Pini
| 528
| **
|
| Kwong O. Nuey, Jr.
| 506
| **
|
|
|
|
|
| Named Executives:
|
|
|
| Thomas H. Baron
| 1,937
| **
|
| Leslie E. LoBaugh, Jr.
| 430
| **
|
| William J. Synwoldt
| 0
| **
|
| Joseph M. Russo
| 0
| **
|
|
|
|
|
| All Directors and Executives Officers (27) as a group
|
37,920
| **
|
Equity Compensation Plans
A summary of our stockholder approved equity compensation plans as of March 31, 2002 is as follows:
| (a)
| (b)
| (c)
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights (d)
| Weighted average exercise price of outstanding options, warrants and rights
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
|
|
|
|
|
Equity compensation plans approved by security holders
|
2,790,534
|
$8.32
|
177,699,048 (e)
|
|
|
|
|
Equity compensation plans not approved by security holders
|
-
|
-
|
-
|
|
|
|
|
Total
| 2,790,534
| $8.32
| 177,699,048
|
(d) The options are for National Grid shares listed on the London Stock Exchange - not National Grid ADRs, each ADR being equal to five shares.
(e) This is the total number of securities available for future issuance under the plans, however, the amount available for issuance to senior executives is limited to 88,849,524 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Certain documents filed as part of the Form 10-K/A
(1) INDEX OF FINANCIAL STATEMENTS
- Report of Independent Accountants
- Niagara Mohawk Power Corporation Consolidated Statements of Income (Loss) and Retained Earnings for the 30 day period ended January 30, 2002, the 60 day period ended March 31, 2002 and each of the 3 years in the period ended December 31, 2001
- Niagara Mohawk Power Corporation Consolidated Statements of Comprehensive Income (Loss) for the 30 day period ended January 30, 2002, the 60 day period ended March 31, 2002 and each of the 3 years in the period ended December 31, 2001
- Niagara Mohawk Power Corporation Consolidated Balance Sheets at March 31, 2002, December 31, 2001 and 2000
- Niagara Mohawk Power Corporation Consolidated Statements of Cash Flows for the 30 day period ended January 30, 2002, the 60 day period ended March 31, 2002 and each of the 3 years in the period ended December 31, 2001
- Notes to Consolidated Financial Statements
(2) The following financial statement schedule of Niagara Mohawk for the quarter ended March 31, 2002 and the years ended December 31, 2001, 2000 and 1999 are included:
- Report of Independent Accountants on Financial Statement Schedule
- Consolidated Financial Statement Schedule:
II--Valuation and Qualifying Accounts and Reserves -Niagara Mohawk
The Financial Statement Schedule above should be read in conjunction with the Consolidated Financial Statements in Part II, Item 8 (Financial Statements and Supplementary Data).
Schedules other than those mentioned above are omitted because the conditions requiring their filing do not exist or because the required information is given in the financial statements, including the notes thereto.
(3) List of Exhibits:
See Exhibit Index.
Niagara Mohawk Power Corporation
Form 8-K Reporting Date - January 17, 2002
Items reported:
(1) Item 5. Other Events
The SEC approved the merger between National Grid and Holdings on January 16, 2002.
(2) Item 7. Financial Statements and Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - January 31, 2002
Items reported:
(1) Item 5. Other Events
On January 31, 2002, the merger with National Grid and Holdings was completed.
(2) Item 7. Financial Statements and Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - February 5, 2002
Items reported:
(1) Item 5. Other Events
On February 5, 2002, Niagara Mohawk announced redemption of six series of preferred stock.
(2) Item 7. Financial Statements and Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - February 21, 2002
Items reported:
(1) Item 5. Other Events
On February 21, 2002, Niagara Mohawk filed certain financial information including financial statements for the year ended December 31, 2001.
(2) Item 7. Financial Statements and Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K.
(3) Item 8. Change of Fiscal Year
Niagara Mohawk will change its fiscal year from a calendar year ending December 31 to a fiscal year ending March 31 to align its fiscal year with that of its new parent, National Grid.
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholders and Board of Directors of
Niagara Mohawk Power Corporation:
Our audits of the consolidated financial statements of Niagara Mohawk Power Corporation referred to in our report dated May 14, 2002, appearing in this Form 10-K/A also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10- K/A. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
As discussed in Note 12, the Company restated its consolidated financial statements for each of the three years in the the period ended December 31, 2001.
s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 14, 2002, except for Notes 12 and 13, which are as of April 7, 2003
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVESRESTATED (b)Column A
| Column B
| Column C
| Column D
| Column E
|
|
| Additions
|
|
|
|
| Balance at
| Charged to
|
|
| Balance
|
|
| Beginning
| Costs and
|
| Deductions
| at End
|
|
Description
| of Period
| Expenses
|
| (a)
| of Period
|
|
|
|
|
|
|
|
|
Allowance for Doubtful
|
|
|
|
|
|
|
Accounts -Deducted from
|
|
|
|
|
|
|
Accounts Receivable in
|
|
|
|
|
|
|
the Consolidated
|
|
|
|
|
|
|
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 Days Ended March 31, 2002
| $ 57,498
| $ 10,503
| (b)
| $ 6,700
| $ 61,301
|
|
30 Days Ended January 30, 2002
| 56,008
| 6,644
| (b)
| 5,154
| 57,498
|
|
Year ended December 31, 2001
| 59,085
| 64,324
| (b)
| 67,401
| 56,008
|
|
Year ended December 31, 2000
| 59,421
| 56,642
| (b)
| 56,978
| 59,085
|
|
Year ended December 31, 1999
| 47,863
| 65,854
| (b)
| 54,296
| 59,421
|
|
(a) Uncollectible accounts written off net of recoveries.
(b) See Note 12 to the accompanying Notes to Consolidated Financial Statements.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
| Column B
| Column C
| Column D
|
| Column E
|
|
| Additions
|
|
|
|
|
| Balance at
| Charged to
|
|
|
| Balance
|
|
| Beginning
| Costs and
|
|
|
| at End
|
|
Description
| of Period
| Expenses
|
| Deductions
|
| of Period (c)
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
Valuation Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 days ended March 31, 2002
| $ 9,435
| $ -
|
| $ -
|
| 9,435
|
|
30 days ended January 30, 2002
| 9,435
| -
|
| -
|
| 9,435
|
|
Year Ended December 31, 2001
| 32,380
| 194
|
| 23,139
| (d)
| 9,435
|
|
Year Ended December 31, 2000
| 31,680
| 700
|
| -
|
| 32,380
|
|
Year Ended December 31, 1999
| 33,063
| 546
|
| 1,929
|
| 31,680
|
|
- The reserve in 2001 relates to non-rate base properties. In 1999 and 2000, the reserves related to certain materials and supplies inventory, non-rate base properties and a write-down against an investment.
- In 2001, Niagara Mohawk eliminated certain valuation reserves, including certain materials and supplies inventory reserve as a result of the sale of its nuclear assets in November 2001.
NIAGARA MOHAWK POWER CORPORATION
EXHIBIT INDEX
In the following exhibit list, Holdings refers to Niagara Mohawk Holdings, Inc., Niagara Mohawk refers to Niagara Mohawk Power Corporation and CNYP refers to Central New York Power Corporation, a predecessor company of Niagara Mohawk. Each document referred to below is incorporated by reference to the files of the Commission, unless the reference to the document in the list is preceded by an asterisk. As permitted by Item 10(d) of Regulation S-K, certain exhibits are incorporated herein by reference to periodic reports filed by Niagara Mohawk more than five years ago which have not been disposed of by the Commission pursuant to its Records Control Schedule. As set forth below, each of such periodic reports is located in Commission file number 0-1. Previous filings with the Commission are indicated as follows:
Reference Report Name
A Niagara Mohawk Registration Statement No. 2-8214
C Niagara Mohawk Registration Statement No. 2-8634
F CNYP Registration Statement No. 2-3414
G CNYP Registration Statement No. 2-5490
V Niagara Mohawk Registration Statement No. 2-10501
X Niagara Mohawk Registration Statement No. 2-12443
Z Niagara Mohawk Registration Statement No. 2-13285
CC Niagara Mohawk Registration Statement No. 2-16193
DD Niagara Mohawk Registration Statement No. 2-18995
GG Niagara Mohawk Registration Statement No. 2-25526
HH Niagara Mohawk Registration Statement No. 2-26918
II Niagara Mohawk Registration Statement No. 2-29575
KK Niagara Mohawk Registration Statement No. 2-38083
OO Niagara Mohawk Registration Statement No. 2-49570
QQ Niagara Mohawk Registration Statement No. 2-51934
TT Niagara Mohawk Registration Statement No. 2-54017
VV Niagara Mohawk Registration Statement No. 2-59500
CCC Niagara Mohawk Registration Statement No. 2-70860
Reference Report Name
III Niagara Mohawk Registration Statement No. 2-90568
OOO Niagara Mohawk Registration Statement No. 33-32475
PPP Niagara Mohawk Registration Statement No. 33-38093
QQQ Niagara Mohawk Registration Statement No. 33-47241
RRR Niagara Mohawk Registration Statement No. 33-59594
SSS Niagara Mohawk Registration Statement No. 33-49541
TTT Niagara Mohawk Registration Statement No. 333-49769
b Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 1990
d Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 1993
e Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 1994
f Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 1995
h Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 1997
i Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 1998
j Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 1999
k Niagara Mohawk Annual Report on Form 10-K for year ended December 31, 2000
l Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended March 31, 1993, located in Commission file number 0-1
m Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended September 30, 1993, located in Commission file number 0-1
n Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended June 30, 1995
o Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended June 30, 1997
p Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended March 31, 1998
q Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended June 30, 1998
r Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended September 30, 1998
s Niagara Mohawk Quarterly Report of Form 10-Q for quarter ended March 31, 1999
t Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended June 30, 1999
u Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended June 30, 2000
v Niagara Mohawk Quarterly Report on Form 10-Q for quarter ended September 30, 2001
w Niagara Mohawk Current Report on Form 8-K dated July 9, 1997
x Niagara Mohawk Current Report on Form 8-K dated October 10, 1997
y Niagara Mohawk Current Report on Form 8-K dated March 18, 1999
z Niagara Mohawk Current Report on Form 8-K dated November 30, 1999
aa Niagara Mohawk Current Report on Form 8-K dated May 9, 2000
bb Niagara Mohawk Current Report on Form 8-K dated September 4, 2000
cc Niagara Mohawk Current Report on Form 8-K dated September 25, 2001
In accordance with Paragraph 4(iii) of Item 601 (b) of Regulation S-K, Niagara Mohawk agrees to furnish to the Securities and Exchange Commission, upon request, a copy of the agreements comprising the $804 million senior bank financing that Niagara Mohawk completed with a bank group on June 1, 2000, and subsequently amended. The total amount of long-term debt authorized under such agreement does not exceed ten percent of the total consolidated assets of Niagara Mohawk and its subsidiaries.
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
2
| TTT
| 2(a)
| Agreement and Plan of Exchange between Niagara Mohawk and Holdings
|
3(a)(1)
| e
| 3(a)(1)
| Certificate of Consolidation of New York Power and Light Corporation, Buffalo Niagara Electric Corporation and Central New York Power Corporation, filed in the office of the New York Secretary of State, January 5, 1950
|
3(a)(2)
| e
| 3(a)(2)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk, filed in the office of the New York Secretary of State, January 5, 1950
|
3(a)(3)
| e
| 3(a)(3)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk pursuant to Section 36 of the Stock Corporation Law of New York, filed August 22, 1952, in the office of the New York Secretary of State
|
3(a)(4)
| e
| 3(a)(4)
| Certificate of Niagara Mohawk pursuant to Section 11 of the Stock Corporation Law of New York filed May 5, 1954 in the office of the New York Secretary of State
|
3(a)(5)
| e
| 3(a)(5)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk pursuant to Section 36 of the Stock Corporation Law of New York, filed January 9, 1957 in the office of the New York Secretary of State
|
3(a)(6)
| e
| 3(a)(6)
| Certificate of Niagara Mohawk pursuant to Section 11 of the Stock Corporation Law of New York, filed May 22, 1957 in the office of the New York Secretary of State
|
3(a)(7)
| e
| 3(a)(7)
| Certificate of Niagara Mohawk pursuant to Section 11 of the Stock Corporation Law of New York, filed February 18, 1958 in the office of the New York Secretary of State
|
3(a)(8)
| e
| 3(a)(8)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 5, 1965 in the office of the New York Secretary of State
|
3(a)(9)
| e
| 3(a)(9)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed August 24, 1967 in the office of the New York Secretary of State
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
3(a)(10)
| e
| 3(a)(10)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed August 19, 1968 in the office of the New York Secretary of State
|
3(a)(11)
| e
| 3(a)(11)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed September 22, 1969 in the office of the New York Secretary of State
|
3(a)(12)
| e
| 3(a)(12)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 12, 1971 in the office of the New York Secretary of State
|
3(a)(13)
| e
| 3(a)(13)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed August 18, 1972 in the office of the New York Secretary of State
|
3(a)(14)
| e
| 3(a)(14)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed June 26, 1973 in the office of the New York Secretary of State
|
3(a)(15)
| e
| 3(a)(15)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 9, 1974 in the office of the New York Secretary of State
|
3(a)(16)
| e
| 3(a)(16)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed March 12, 1975 in the office of the New York Secretary of State
|
3(a)(17)
| e
| 3(a)(17)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 7, 1975 in the office of the New York Secretary of State
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
3(a)(18)
| e
| 3(a)(18)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed August 27, 1975 in the office of the New York Secretary of State
|
3(a)(19)
| e
| 3(a)(19)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 7, 1976 in the office of the New York Secretary of State
|
3(a)(20)
| e
| 3(a)(20)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed September 28, 1976 in the office of the New York Secretary of State
|
3(a)(21)
| e
| 3(a)(21)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed January 27, 1978 in the office of the New York Secretary of State
|
3(a)(22)
| e
| 3(a)(22)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 8, 1978 in the office of the New York Secretary of State
|
3(a)(23)
| e
| 3(a)(23)
| Certificate of Correction of the Certificate of Amendment filed May 7, 1976 of the Certificate of Incorporation under Section 105 of the Business Corporation Law of New York, filed July 13, 1978 in the office of the New York Secretary of State
|
3(a)(24)
| e
| 3(a)(24)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed July 17, 1978 in the office of the New York Secretary of State
|
3(a)(25)
| e
| 3(a)(25)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed March 3, 1980 in the office of the New York Secretary of State
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
3(a)(26)
| e
| 3(a)(26)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed March 31, 1981 in the office of the New York Secretary of State
|
3(a)(27)
| e
| 3(a)(27)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed March 31, 1981 in the office of the New York Secretary of State
|
3(a)(28)
| e
| 3(a)(28)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed April 22, 1981 in the office of the New York Secretary of State
|
3(a)(29)
| e
| 3(a)(29)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 8, 1981 in the office of the New York Secretary of State
|
3(a)(30)
| e
| 3(a)(30)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed April 26, 1982 in the office of the New York Secretary of State
|
3(a)(31)
| e
| 3(a)(31)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed January 24, 1983 in the office of the New York Secretary of State
|
3(a)(32)
| e
| 3(a)(32)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed August 3, 1983 in the office of the New York Secretary of State
|
3(a)(33)
| e
| 3(a)(33)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed December 27, 1983 in the office of the New York Secretary of State
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
3(a)(34)
| e
| 3(a)(34)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed December 27, 1983 in the office of the New York Secretary of State
|
3(a)(35)
| e
| 3(a)(35)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed June 4, 1984 in the office of the New York Secretary of State
|
3(a)(36)
| e
| 3(a)(36)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed August 29, 1984 in the office of the New York Secretary of State
|
3(a)(37)
| e
| 3(a)(37)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed April 17, 1985 in the office of the New York Secretary of State
|
3(a)(38)
| e
| 3(a)(38)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 3, 1985 in the office of the New York Secretary of State
|
3(a)(39)
| e
| 3(a)(39)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed December 24, 1986 in the office of the New York Secretary of State
|
3(a)(40)
| e
| 3(a)(40)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed June 1, 1987 in the office of the New York Secretary of State
|
3(a)(41)
| e
| 3(a)(41)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed July 20, 1987 in the office of the New York Secretary of State
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
3(a)(42)
| e
| 3(a)(42)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 27, 1988 in the office of the New York Secretary of State
|
3(a)(43)
| e
| 3(a)(43)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed September 27, 1990 in the office of the New York Secretary of State
|
3(a)(44)
| e
| 3(a)(44)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed October 18, 1991 in the office of the New York Secretary of State
|
3(a)(45)
| e
| 3(a)(45)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed May 5, 1994 in the office of the New York Secretary of State
|
3(a)(46)
| e
| 3(a)(46)
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed August 5, 1994 in the office of the New York Secretary of State
|
3(a)(47)
| q
| 3
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed June 29, 1998 in the office of the New York Secretary of State
|
3(a)(48)
| s
| 3
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed March 19, 1999 in the office of the New York Secretary of State
|
3(a)(49)
| z
| 3.1
| Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk under Section 805 of the Business Corporation Law of New York, filed November 29, 1999 in the office of the New York Secretary of State
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
3(b)(1)
| p
| 3(i)
| By-Laws of Niagara Mohawk, as amended May 17, 1999
|
4(a)
| e
| 4(b)
| Agreement to furnish certain debt instruments
|
4(b)(1)
| F
| **
| Mortgage Trust Indenture dated as of October 1, 1937 between Niagara Mohawk (formerly CNYP) and Marine Midland Bank, N.A. (formerly named The Marine Midland Trust Company of New York), as Trustee
|
4(b)(2)
| VV
| 2-3
| Supplemental Indenture dated as of December 1, 1938, supplemental to Exhibit 4(1)
|
4(b)(3)
| VV
| 2-4
| Supplemental Indenture dated as of April 15, 1939, supplemental to Exhibit 4(1)
|
4(b)(4)
| VV
| 2-5
| Supplemental Indenture dated as of July 1, 1940, supplemental to Exhibit 4(1)
|
4(b)(5)
| G
| 7-6
| Supplemental Indenture dated as of October 1, 1944, supplemental to Exhibit 4(1)
|
4(b)(6)
| VV
| 2-8
| Supplemental Indenture dated as of June 1, 1945, supplemental to Exhibit 4(1)
|
4(b)(7)
| VV
| 2-9
| Supplemental Indenture dated as of August 17, 1948, supplemental to Exhibit 4(1)
|
4(b)(8)
| A
| 7-9
| Supplemental Indenture dated as of December 31, 1949, supplemental to Exhibit 4(1)
|
4(b)(9)
| A
| 7-10
| Supplemental Indenture dated as of January 1, 1950, supplemental to Exhibit 4(1)
|
4(b)(10)
| C
| 7-11
| Supplemental Indenture dated as of October 1, 1950, supplemental to Exhibit 4(1)
|
** Filed October 15, 1937 after effective date of Registration Statement No. 2-3414.
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
4(b)(11)
| C
| 7-12
| Supplemental Indenture dated as of October 19, 1950, supplemental to Exhibit 4(1)
|
4(b)(12)
| V
| 4-16
| Supplemental Indenture dated as of February 20, 1953, supplemental to Exhibit 4(1)
|
4(b)(13)
| X
| 4-19
| Supplemental Indenture dated as of April 25, 1956, supplemental to Exhibit 4(1)
|
4(b)(14)
| CC
| 2-23
| Supplemental Indenture dated as of March 15, 1960, supplemental to Exhibit 4(1)
|
4(b)(15)
| GG
| 2-27
| Supplemental Indenture dated as of October 1, 1966, supplemental to Exhibit 4(1)
|
4(b)(16)
| HH
| 4-29
| Supplemental Indenture dated as of July 15, 1967, supplemental to Exhibit 4(1)
|
4(b)(17)
| HH
| 4-30
| Supplemental Indenture dated as of August 1, 1967, supplemental to Exhibit 4(1)
|
4(b)(18)
| II
| 2-30
| Supplemental Indenture dated as of August 1, 1968, supplemental to Exhibit 4(1)
|
4(b)(19)
| VV
| 2-39
| Supplemental Indenture dated as of March 15, 1977, supplemental to Exhibit 4(1)
|
4(b)(20)
| CCC
| 4(b)(40)
| Supplemental Indenture dated as of August 1, 1977, supplemental to Exhibit 4(1)
|
4(b)(21)
| CCC
| 4(b)(42)
| Supplemental Indenture dated as of March 1, 1978, supplemental to Exhibit 4(1)
|
4(b)(22)
| CCC
| 4(b)(46)
| Supplemental Indenture dated as of June 15, 1980, supplemental to Exhibit 4(1)
|
4(b)(23)
| III
| 4(b)(64)
| Supplemental Indenture dated as of November 1, 1985, supplemental to Exhibit 4(1)
|
4(b)(24)
| OOO
| 4(b)(73)
| Supplemental Indenture dated as of October 1, 1989, supplemental to Exhibit 4(1)
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
4(b)(25)
| PPP
| 4(b)(74)
| Supplemental Indenture dated as of June 1, 1990, supplemental to Exhibit 4(1)
|
4(b)(26)
| PPP
| 4(b)(75)
| Supplemental Indenture dated as of November 1, 1990, supplemental to Exhibit 4(1)
|
4(b)(27)
| QQQ
| 4(b)(76)
| Supplemental Indenture dated as of March 1, 1991, supplemental to Exhibit 4(1)
|
4(b)(28)
| QQQ
| 4(b)(77)
| Supplemental Indenture dated as of October 1, 1991, supplemental to Exhibit 4(1)
|
4(b)(29)
| QQQ
| 4(b)(78)
| Supplemental Indenture dated as of April 1, 1992, supplemental to Exhibit 4(1)
|
4(b)(30)
| RRR
| 4(b)(79)
| Supplemental Indenture dated as of June 1, 1992, supplemental to Exhibit 4(1)
|
4(b)(31)
| RRR
| 4(b)(80)
| Supplemental Indenture dated as of July 1, 1992, supplemental to Exhibit 4(1)
|
4(b)(32)
| RRR
| 4(b)(81)
| Supplemental Indenture dated as of August 1, 1992, supplemental to Exhibit 4(1)
|
4(b)(33)
| l
| 4(b)(82)
| Supplemental Indenture dated as of April 1, 1993, supplemental to Exhibit 4(1)
|
4(b)(34)
| m
| 4(b)(83)
| Supplemental Indenture dated as of July 1, 1993, supplemental to Exhibit 4(1)
|
4(b)(35)
| m
| 4(b)(84)
| Supplemental Indenture dated as of September 1, 1993, supplemental to Exhibit 4(1)
|
4(b)(36)
| j
| 4(b)(36)
| Supplemental Indenture dated as of March 1, 1994, supplemental to Exhibit 4(1)
|
4(b)(37)
| e
| 4(86)
| Supplemental Indenture dated as of July 1, 1994, supplemental to Exhibit 4(1)
|
4(b)(38)
| n
| 4(87)
| Supplemental Indenture dated as of May 1, 1995, supplemental to Exhibit 4(1)
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
4(b)(39)
| SSS
| 4(a)(39)
| Supplemental Indenture dated as of March 20, 1996, supplemental to Exhibit 4(1)
|
4(b)(40)
| j
| 4(b)40
| Supplemental Indenture dated as of November 1, 1998, supplemental to Exhibit 4(1)
|
4(b)(41)
| G
| 7-23
| Agreement dated as of August 16, 1940, among CNYP, The Chase National Bank of the City of New York, as Successor Trustee, and The Marine Midland Trust Company of New York, as Trustee
|
4(c)
| SSS
| 4(a)(41)
| Form of Indenture relating to the Senior Notes dated June 30, 1998
|
4(d)(1)
| aa
| Exhibit 1.2
| Indenture, dated as of May 12, 2000, between Niagara Mohawk Power Corporation, a New York Corporation, and The Bank of New York, a New York banking corporation, as Trustee.
|
4(d)(2)
| aa
| Exhibit 1.3
| First Supplemental Indenture, dated as of May 12, 2000, between Niagara Mohawk Power Corporation, a New York corporation, and The Bank of New York, a New York banking corporation, as Trustee.
|
4(d)(3)
| cc
| Exhibit 1.2
| Form of Second Supplemental Indenture, between Niagara Mohawk Power Corporation and The Bank of New York, as Trustee.
|
10-1
| Z
| 13-11
| Agreement dated March 1, 1957 between the Power Authority of the State of New York and Niagara Mohawk as to sale, transmission, and disposition of St. Lawrence power
|
10-2
| DD
| 13-6
| Agreement dated February 10, 1961 between the Power Authority of the State of New York and Niagara Mohawk as to sale, transmission, and disposition of St. Lawrence power
|
10-3
| DD
| 13-7
| Agreement dated July 26, 1961 between the Power Authority of the State of New York and Niagara Mohawk supplemental to Exhibit 10-2
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
10-4
| OO
| 5-8
| Agreement dated March 23, 1973 between the Power Authority of the State of New York and Niagara Mohawk as to the sale, transmission, and disposition of Blenheim-Gilboa power
|
10-5
| w
| 10.28
| Master Restructuring Agreement dated July 9, 1997 among Niagara Mohawk and the 16 independent power producers signatory thereto
|
10-6
| x
| 99-9
| Power Choice settlement filed with the PSC on October 10, 1997
|
10-7
| h
| 10-13
| PSC Opinion and Order regarding approval of the Power Choice settlement agreement with PSC, issued and effective March 20, 1998
|
10-8
| h
| 10-14
| Preferred Consent, December 1997
|
10-9
| p
| 10(c)
| Amendments to the Master Restructuring Agreement
|
10-10
| j
| 10-14
| Independent System Operator Agreement dated December 2, 1999
|
10-11
| j
| 10-15
| Agreement between New York Independent System Operator and Transmission Owners dated December 2, 1999
|
10-12
| k
| 10-42a
| Agreement between Niagara Mohawk Power Corporation and Constellation Energy Group, Inc. to sell Nine Mile Point Nuclear Station Unit No. 1
|
10-13
| k
| 10-42b
| Agreement among Niagara Mohawk Power Corporation, NYSEG, RG&E, CH and Constellation Energy Group, Inc. to sell Nine Mile Point Nuclear Station Unit No. 2
|
10-14
| v
| 10-9
| PSC Opinion and Order regarding approval of the sale of Nine Mile Point Nuclear Station Units No. 1 and No. 2
|
10-15
| v
| 10-10
| Merger Rate Agreement reached among Niagara Mohawk, the PSC staff and other parties, filed with the PSC on October 11, 2001
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
(A)10-16
| j
| 10-23
| Amendment to exhibit (A)10-24 to change the agreement for the Holdings’ structure
|
(A)10-17
| s
| 10-1
| Employment contract among Holdings, Niagara Mohawk and William E. Davis, Chairman of the Board & Chief Executive Officer, dated March 17, 1999
|
(A)10-18
| s
| 10-3
| Employment contract among Holdings, Niagara Mohawk and Darlene D. Kerr, Executive Vice President and Chief Operating Officer, dated March 17, 1999
|
(A)10-19
| s
| 10-4
| Amended employment contract among Holdings, Niagara Mohawk and David J. Arrington, Senior Vice President-Human Resources and Chief Administrative Officer, dated March 17, 1999
|
(A)10-20
| s
| 10-4
| Employment contract among Holdings, Niagara Mohawk and David J. Arrington, Senior Vice President-Human Resources and Chief Administrative Officer, dated March 17, 1999
|
(A)10-21
| s
| 10-5
| Amended employment contract among Holdings, Niagara Mohawk and Thomas H. Baron, Senior Vice President-Field Operations, dated March 17, 1999
|
(A)10-22
| s
| 10-5
| Employment contract among Holdings, Niagara Mohawk and Thomas H. Baron, Senior Vice President-Field Operations, dated March 17, 1999
|
(A)10-23
| s
| 10-6
| Employment contract among Holdings, Niagara Mohawk and Edward J. Dienst, Senior Vice President- Asset Management and Energy Delivery, dated March 17, 1999
|
(A)10-24
| s
| 10-7
| Employment contract among Holdings, Niagara Mohawk and William F. Edwards, Senior Vice President and Chief Financial Officer, dated March 17, 1999
|
(A)10-25
| s
| 10-9
| Employment contract among Holdings, Niagara Mohawk and John H. Mueller, Senior Vice President and Chief Nuclear Officer, dated March 17, 1999
|
| INCORPORATION BY REFERENCE
|
|
|
|
|
|
EXHIBIT NO.
| PREVIOUS FILING
| PREVIOUS EXHIBIT DESIGNATION
|
DESCRIPTION OF INSTRUMENT
|
(A)10-26
| s
| 10-10
| Employment contract among Holdings, Niagara Mohawk and Theresa A. Flaim, Vice President - Strategic Planning, dated March 17, 1999
|
(A)10-27
| s
| 10-11
| Employment contract among Holdings, Niagara Mohawk and Kapua A. Rice, Corporate Secretary, dated March 17, 1999
|
(A)10-28
| s
| 10-12
| Employment contract among Holdings, Niagara Mohawk and Steven W. Tasker, Vice President-Controller, dated March 17, 1999
|
(A)10-29
| k
| 10-40
| Amendment to employment contracts among Holdings, Niagara Mohawk and W. E. Davis, A. J. Budney,
D. D. Kerr, D. J. Arrington, W. F. Edwards, J. H. Mueller, G. J. Lavine, E. J. Dienst and T. H. Baron dated September 27, 2000
|
(A)10-30
| k
| 10-43
| Amendment to employment contracts among Holdings, Niagara Mohawk and T. A. Flaim, K. A. Rice, and
S. W. Tasker dated September 27, 2000
|
*12
|
|
| Statements showing computations of certain financial ratios
|
*21
|
|
| Subsidiaries of the Registrants
|
*99-1
|
|
| Certification of CEO under Section 906 of the Sarbanes-Oxley Act of 2002
|
*99-2
|
|
| Certification of CFO under Section 906 of the Sarbanes-Oxley Act of 2002
|
(A) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
| NIAGARA MOHAWK POWER CORPORATION
(Registrant)
|
|
|
Date: April 14, 2003
| By:
| s/Edward A. Capomacchio
|
|
| Edward A. Capomacchio, Authorized Officer
Controller and Principal Accounting Officer
|
CERTIFICATIONSI, William F. Edwards, certify that:
1. I have reviewed this amendment to transition report on Form 10-K of Niagara Mohawk Power Corporation (the “Report”);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; and
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report.
Date: April 14, 2003 s/William F. Edwards_________
William F. Edwards
President and
Chief Executive Officer
I, John G. Cochrane, certify that:
1. I have reviewed this amendment to transition report on Form 10-K of Niagara Mohawk Power Corporation (the “Report”);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; and
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report.
Date: April 14, 2003 s/John G. Cochrane______________
John G. Cochrane
Chief Financial Officer
EXHIBIT 12
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
STATEMENT SHOWING COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in thousands of dollars)
|
| Twelve
|
|
|
|
|
|
|
|
|
|
|
|
| Months
|
|
|
|
|
|
|
|
|
|
|
|
| Ended
|
|
|
|
|
|
|
|
|
|
|
|
| March 31,
|
| Year Ended December 31,
|
|
| 2002
|
| 2001
|
| 2000
|
| 1999
|
| 1998
|
| 1997
|
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
| RESTATED
|
A.
| Net Income (Loss) per
|
|
|
|
|
|
|
|
|
|
|
|
| Statements of Income
| $ (4,947)
|
| $ 19,358
|
| $ (27,646)
|
| $ (9,661)
|
| $(147,894)
|
| $ 167,870
|
B.
| Taxes Based on Income or
|
|
|
|
|
|
|
|
|
|
|
|
| Profits
| (66,208)
|
| (78,872)
|
| (13,569)
|
| 2,115
|
| (81,303)
|
| 118,269
|
C.
| Earnings, Before Income
|
|
|
|
|
|
|
|
|
|
|
|
| Taxes
| (71,155)
|
| (59,514)
|
| (41,215)
|
| (7,546)
|
| (229,197)
|
| 286,139
|
D.
| Fixed Charges (a)
| 414,270
|
| 428,447
|
| 472,636
|
| 525,912
|
| 455,409
|
| 306,485
|
E.
| Earnings Before Income
|
|
|
|
|
|
|
|
|
|
|
|
| Taxes and Fixed Charges
| 343,115
|
| 368,933
|
| 431,421
|
| 518,366
|
| 226,212
|
| 592,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred Dividend Factor:
|
|
|
|
|
|
|
|
|
|
|
|
F.
| Preferred Dividend
|
|
|
|
|
|
|
|
|
|
|
|
| Requirements
| $ 30,703
|
| $ 30,850
|
| $ 31,437
|
| $ 36,808
|
| $ 36,555
|
| $ 37,397
|
G.
| Ratio of Pre-Tax Income
|
|
|
|
|
|
|
|
|
|
|
|
| to Net Income (C/A)
| N/A
|
| N/A
|
| N/A
|
| N/A
|
| N/A
|
| 1.70
|
H.
| Preferred Dividend Factor
|
|
|
|
|
|
|
|
|
|
|
|
| (FxG)
| $ 30,703
|
| $ 30,850
|
| $ 31,437
|
| $ 36,808
|
| $ 36,555
|
| $ 63,201
|
I.
| Fixed Charges
| 414,270
|
| 428,447
|
| 472,636
|
| 525,912
|
| 455,409
|
| 306,485
|
J.
| Fixed Charges and Preferred
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends Combined
| $ 444,973
|
| $ 459,297
|
| $ 504,073
|
| $ 562,720
|
| $ 491,964
|
| $ 369,686
|
K.
| Ratio of Earnings to
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed Charges (E/D)
| 0.83
| (b)
| 0.86
| (b)
| 0.91
| (b)
| 0.99
| (b)
| 0.50
| (b)
| 1.93
|
L.
| Ratio of Earnings to Fixed
|
|
|
|
|
|
|
|
|
|
|
|
| Charges and Preferred
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends Combined (E/J)
| 0.77
| (c)
| 0.80
| (c)
| 0.86
| (c)
| 0.92
| (c)
| 0.46
| (c)
| 1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2002
|
| 2001
|
| 2000
|
| 1999
|
| 1998
|
| 1997
|
(a)
| Interest Expense
| $ 389,016
|
| $ 402,382
|
| $ 445,842
|
| $ 492,987
|
| $ 419,274
|
| $ 275,940
|
| Interest Factor on Rentals
| 23,079
|
| 23,337
|
| 23,633
|
| 25,673
|
| 25,907
|
| 26,149
|
| Allowance for Funds Used
|
|
|
|
|
|
|
|
|
|
|
|
| During Construction
| 2,175
|
| 2,728
|
| 3,161
|
| 7,252
|
| 10,228
|
| 4,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ 414,270
|
| $ 428,447
|
| $ 472,636
|
| $ 525,912
|
| $ 455,409
|
| $ 306,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
| Fixed charges exceed earnings before income taxes and fixed charges by $71.2 million for the year ended March 31,
|
| 2002, $59.5 million in 2001, $41.2 million in 2000, $7.5 million in 1999, and by $229.2 million in 1998.
|
|
|
(c)
| Fixed charges and preferred dividends combined, exceed earnings before income taxes and fixed
|
|
|
| charges by $101.9 million in the year ended March 31, 2002, $90.4 million in 2001, $72.7 million in 2000,
|
|
|
| $44.4 million in 1999 and $265.8 million in 1998.
|
|
|
|
|
|
|
|
|
N/A - Not applicable due to net loss displayed in line A or negative earnings before income taxes on line C.
|
|
|
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
SUBSIDIARIES OF THE REGISTRANT
Name of Company State of Organization
NM Uranium, Inc. Texas
NM Properties, Inc. (Note 1) New York
NM Receivables Corp. II New York
NM Receivables LLC New York
- 1: At March 31, 2002, NM Properties, Inc. owns Salmon Shores, Inc.; Moreau Park, Inc.; Riverview, Inc.; Hudson Pointe, Inc.; Upper Hudson Development, Inc.; Land Management & Development, Inc.; Oprop Co., Inc.; and Landwest, Inc.
EXHIBIT 99-1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with Amendment No. 1 to the Transition Report of Niagara Mohawk Power Company (the “Company”) on Form 10-K for the transition period from January 31, 2002 to March 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William F. Edwards, President and Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
s/William F. Edwards____
William F. Edwards
President and
Chief Executive Officer
April 14, 2003
EXHIBIT 99-2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with Amendment No. 1 to the Transition Report of Niagara Mohawk Power Company (the “Company”) on Form 10-K for the transition period from January 1, 2002 to March 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John G. Cochrane, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
s/John G. Cochrane_______
John G. Cochrane
Chief Financial Officer
April 14, 2003
