EXHIBIT 13.2
2001 Annual Report
The Connecticut Light and Power Company and Subsidiaries
Index
Contents Page
- -------- ----
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 1
Report of Independent Public Accountants...................... 13
Consolidated Statements of Income............................. 15
Consolidated Statements of Comprehensive Income............... 15
Consolidated Balance Sheets................................... 16-17
Consolidated Statements of Common Stockholder's Equity........ 18
Consolidated Statements of Cash Flows......................... 19
Notes to Consolidated Financial Statements.................... 20
Selected Consolidated Financial Data.......................... 43
Consolidated Quarterly Financial Data (Unaudited)............. 43
Consolidated Statistics (Unaudited)........................... 44
Preferred Stockholder and Bondholder Information.............. Back Cover
The Connecticut Light and Power Company and Subsidiaries
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
Overview
- --------
The Connecticut Light and Power Company's (CL&P or the company), the Northeast
Utilities system's (NU system) largest operating subsidiary, earnings before
preferred dividends totaled $109.8 million in 2001, compared with $148.1
million in 2000 and a loss of $13.6 million in 1999. Earnings at CL&P
decreased primarily because the sale of Millstone three months into 2001
removed a significant source of earnings as compared with 2000. In addition
to the sale of Millstone, CL&P's lower earnings also reflect a $21 million
reduction in distribution and transmission rates the Connecticut Department
of Public Utility Control (DPUC) imposed, which was effective on June 20, 2001.
Future Outlook
- --------------
In 2001, as a result of completing industry restructuring, CL&P has evolved
into an energy delivery company, delivering electricity to customers that is
produced by other companies and sometimes bought by customers through
intermediaries. As of January 1, 2000, CL&P secured four-year fixed-price
contracts with three suppliers to provide power to customers who choose
standard offer service. Select Energy, Inc. (Select Energy), an affiliated
company, became responsible for 50 percent of CL&P's standard offer load for
the entire standard offer period, or approximately 2,000 megawatts annually
at peak. Two other unaffiliated suppliers became responsible for the balance
of CL&P's standard offer load also for the entire standard offer period.
CL&P is fully recovering from retail customers, through reconciling charges,
the cost of buying power from these three standard offer suppliers and
expects to continue this recovery through the expiration of the contracts on
December 31, 2003. As a result, CL&P expects that its financial performance
will be relatively stable and predictable in 2002, absent significant adverse
events, such as a catastrophic storm.
Liquidity
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The year 2001 was marked by tremendous inflows of cash into the NU system and
CL&P as a result of the securitization of stranded costs and the sale of the
Millstone units. CL&P's liquidity benefited from the issuance of $1.4 billion
in rate reduction certificates and the receipt of approximately $800 million
from the sale of the Millstone units. The largest share of the proceeds from
the Millstone sale was used for the repayment of debt. As a result, CL&P's
combined short-term and long-term debt other than rate reduction bonds
decreased to $824.3 million at the end of 2001 from approximately $1.3 billion
at the end of 2000. Capital lease obligations declined to $16 million at the
end of 2001 from $129.9 million at the end of 2000. In 2001, CL&P also repaid
$100 million of Monthly Income Preferred Securities and reduced the amount
outstanding under its accounts receivable facility by $170 million.
Of the $1.4 billion of rate reduction certificates issued by CL&P, $1.1 billion
was used to buyout or buydown high-cost, long-term purchased-power contracts.
The remaining proceeds from the Millstone sale were used primarily to pay state
and federal income taxes on the Millstone sale and return equity capital to NU
parent. Including both return of capital and common dividends, CL&P paid
$60.1 million to NU parent in 2001.
Primarily as a result of the Millstone sale and the issuance of rate reduction
certificates, CL&P's consolidated capitalization ratio was significantly
stronger at the end of 2001 than it was a year earlier. Including capital
lease obligations, but excluding rate reduction bonds as these bonds are
nonrecourse to CL&P, CL&P's capitalization ratio was 48.5 percent debt,
6.7 percent preferred securities and 44.8 percent common equity at the end
of 2001, compared with 63.5 percent debt, 5.0 percent preferred securities
and 31.5 percent common equity at the end of 2000. The improved capitalization
ratio and lowered overall risk profile resulted in a series of upgrades of the
NU system securities through 2001. At the end of 2001, senior debt ratings on
CL&P's securities were A2 and A-. Overall, those ratings were the highest for
CL&P securities in decades and are expected to continue to enhance CL&P's
access to low-cost capital.
CL&P's net cash flows provided by operating activities declined to $44.2
million in 2001, compared with $259.9 million in 2000 and $299.4 million in
1999. In 2001, cash flows provided by operating activities, decreased
primarily due to the tax impact of the Millstone sale in March 2001 and a
reduction in the accounts receivable sold under CL&P's receivables program.
The level of common dividends totaled $60.1 million in 2001, as compared to
$72 million in 2000 and no common dividends in 1999. The level of preferred
dividends decreased to $5.6 million in 2001, compared with $7.4 million in
2000 and $12.8 million in 1999, reflecting CL&P's ongoing effort to reduce
preferred stock outstanding. CL&P currently forecasts construction
expenditures of up to $244 million for the year 2002.
CL&P's dividend policy will depend largely on its earnings and the timing and
scope of its expected increasing investment in its distribution and
transmission system. In 2002, CL&P may make additional dividend payments to
NU to help achieve its target leverage ratio of approximately 55 percent,
excluding rate reduction bonds. As of December 31, 2001, CL&P's
capitalization included total debt of approximately 48 percent, excluding
rate reduction bonds.
Beyond 2001, CL&P may need to issue long-term debt if its currently planned
transmission construction program is approved by regulators.
Business Development and Capital Expenditures
- ---------------------------------------------
In 2001, NU system companies announced a number of initiatives to significantly
increase their investment in regulated electric transmission facilities,
particularly in Connecticut. CL&P announced that it planned to construct two
new 345,000 volt transmission line facilities totaling approximately 85 miles
into Norwalk, Connecticut at a combined cost of approximately $520 million.
An application to construct one of the facilities, an approximately 20-mile
facility from Bethel, Connecticut to Norwalk, Connecticut, was filed in October
2001 with the Connecticut Siting Council. A decision is expected by the fall
of 2002. The application related to a second facility from Middletown,
Connecticut to Norwalk, Connecticut will be filed with the Connecticut Siting
Council later in 2002. CL&P also has proposed replacing the existing 138,000
volt transmission line beneath Long Island Sound between Norwalk, Connecticut
and Northport - Long Island, New York. CL&P, which owns an equal share of the
existing line with the Long Island Power Authority, would bear approximately
half of the cost of the $80 million project. That project would require
Connecticut, New York and federal regulatory approvals. This application was
filed with the Connecticut Siting Council in February 2002. If approved,
these three projects would increase CL&P's capital expenditures. CL&P's
capital investments in electric utility plant totaled $237.4 million in 2001
and $208.2 million in 2000, well above the $132.2 million level of 1998,
primarily as a result of increased spending on CL&P's distribution system.
CL&P's capital expenditures are expected to total $244 million in 2002 and
higher in 2003 through 2005, if the transmission projects are approved.
Restructuring and Rate Matters
- ------------------------------
Industry restructuring for CL&P was essentially completed in 2000. In June
2001, the DPUC concluded an investigation of potential overearnings by CL&P
and ordered a $21.1 million reduction in CL&P's electric transmission and
distribution rates and an equal increase in CL&P's Generation Services
Charge. The DPUC also implemented an earnings sharing mechanism under which
earnings in excess of a 10.3 percent return on equity will be shared equally
by shareholders and ratepayers. On September 28, 2001, the DPUC ordered a
$21.3 million annual reduction in CL&P's System Benefits Charge as a result
of a sharp reduction in decommissioning collections and an equal increase in
the Competitive Transition Assessment, effective January 1, 2002. Also, on
July 26, 2001, the DPUC authorized CL&P to assess a charge of approximately
$0.002 per kilowatt-hour (kWh) from August 2001 through December 2003 to
collect approximately $98.5 million of deferred fuel costs. The net result
of these decisions was a reduction in CL&P's pretax earnings of $21.1 million
beginning June 20, 2001, an acceleration of CL&P's recovery of stranded costs
in 2002 and 2003, and further enhancement of CL&P's cash flows.
On September 27, 2001, CL&P filed its application with the DPUC for approval
of the disposition of the proceeds from the sale of the Millstone units to a
subsidiary of Dominion Resources, Inc., Dominion Nuclear Connecticut, Inc.
(DNCI). This application described and requested DPUC approval for CL&P's
treatment of its share of the proceeds from the sale. A decision from the
DPUC is expected in the first half of 2002.
Since retail competition began in Connecticut in 2000, an extremely small
number of CL&P customers have opted to choose their retail supplier. As of
December 31, 2001, virtually all of CL&P's customers were procuring their
electricity through CL&P's standard offer service. Through December 2003,
50 percent of CL&P's standard offer service requirements will be purchased from
Select Energy with the remaining 50 percent being purchased from two
unaffiliated companies. On November 18, 2001, at the request of one of the
unaffiliated companies, CL&P filed a request with the DPUC to raise the
standard offer service rate from an average of $0.0495 per kWh to $0.0595 per
kWh to help promote competition in advance of the January 1, 2004,
termination of the standard offer service period and to provide financial
relief to the standard offer suppliers. In December 2001, the DPUC rejected
CL&P's request, but opened two new dockets to examine the absence of
effective retail electric competition in Connecticut and the financial
condition of the suppliers. The dockets will include the gathering of
information regarding the viability of the standard offer service contracts,
their reliability and whether the standard offer service contracts should be
linked to market conditions. The DPUC held hearings in February 2002. A
decision in this docket which could lead to the re-opening of CL&P's standard
offer docket to consider these issues is expected to be issued in the first
half of 2002.
For further information regarding commitments and contingencies related to
restructuring, see Note 10A, "Commitments and Contingencies - Restructuring,"
to the consolidated financial statements.
Regional Transmission Organization
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The Federal Energy Regulatory Commission (FERC) has required all transmission
owning utilities, including CL&P, to voluntarily start forming regional
transmission organizations (RTO) or to state why this process has not begun.
In July 2001, the FERC stated that the three existing Northeastern
Independent System Operators (ISO) (PJM, New York and New England) should
work together to form one RTO. The FERC initiated a mediation effort between
all interested parties to begin the process of forming such an entity.
NU has been discussing with the other transmission owners in the three pool
area the potential to form an Independent Transmission Company (ITC). The
ITC would be a for-profit entity and would perform certain transmission
functions required by the FERC including tariff control, system planning and
system operations. The remaining functions required by the FERC would be
performed by the ISO and deal with the energy market and short-term
reliability. Together, the ITC and ISO form the FERC desired RTO.
In January 2002, the New York and New England ISOs announced their intention
to form an RTO. NU is working with the other transmission owners in these
two power pools to create an ITC. The agreements needed to create the ITC
and to define the working relationships among the ISO, the ITC and the
transmission owners should be created in 2002 and will allow the ITC to begin
operation shortly thereafter. The ITC and/or ISO will have the
responsibility to collect the revenue requirements of each transmission
owning entity from the market place through FERC approved tariffs. The
creation of the ITC and/or RTO will require a FERC rate case and the impact
on NU's return on equity as a result of this rate case cannot be estimated at
this time.
Nuclear Plant Performance and Other Matters
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Seabrook: Seabrook operated at a capacity factor of 85.9 percent in 2001.
After returning from a scheduled refueling outage in January 2001, Seabrook
operated at a capacity factor of 93.4 percent. Seabrook is scheduled to
undergo a refueling outage in the spring of 2002. CL&P owns 4.06 percent of
Seabrook.
Vermont Yankee: In August 2001, the owners of Vermont Yankee announced they
would sell the unit to an unaffiliated company for $180 million, including
$145 million for the plant and materials and supplies and $35 million for the
nuclear fuel. CL&P owns 9.5 percent of the unit, and under the terms of the
sale, will continue to buy 9.5 percent of the plant's output through March
2012 at a range of fixed prices. The sale requires several regulatory
approvals and is scheduled to close during the first half of 2002.
Millstone: On March 31, 2001, CL&P and Western Massachusetts Electric Company
(WMECO) consummated the sale of Millstone 1 and 2 to DNCI. Additionally, CL&P,
Public Service Company of New Hampshire, and WMECO sold their ownership
interests in Millstone 3 to DNCI. On October 5, 2001, NU issued a report,
following an extensive search, concerning two missing fuel pins at the retired
Millstone 1 nuclear unit, which was sold to DNCI on March 31, 2001. As of
December 31, 2001, costs related to this search for CL&P totaled $5.8 million.
The report concluded that the pins are currently located in one of four
facilities licensed to store low or high-level nuclear waste and that they
are not a threat to public health and safety. A follow-up review by the
Nuclear Regulatory Commission (NRC) commenced shortly after the report was
filed and resulted in a NRC sponsored public meeting on January 15, 2002.
In February 2002, the NRC issued a written inspection report which concluded
that NU's investigation was thorough and complete, and that its conclusions
were reasonable and supportable.
Nuclear Decommissioning
- -----------------------
In connection with the aforementioned sale of the Millstone units, DNCI has
agreed to assume responsibility for decommissioning those units.
For further information regarding nuclear decommissioning, see Note 11,
"Nuclear Decommissioning and Plant Closure Costs," to the consolidated
financial statements.
Spent Nuclear Fuel Disposal Costs
- ---------------------------------
The United States Department of Energy (DOE) originally was scheduled to begin
accepting delivery of spent nuclear fuel on January 31, 1998. However, delays
in confirming the suitability of a permanent storage site continually have
postponed plans for the DOE's long-term storage and disposal site. Extended
delays or a default by the DOE could lead to consideration of costly
alternatives. CL&P has the primary responsibility for the interim storage of
its spent nuclear fuel prior to divestiture of its remaining operating nuclear
units, Seabrook and Vermont Yankee, as well as the three nuclear units
currently undergoing decommissioning, Connecticut Yankee, Maine Yankee and
Yankee Rowe.
For further information regarding spent nuclear fuel disposal costs, see Note
10C, "Commitments and Contingencies - Spent Nuclear Fuel Disposal Costs," to
the consolidated financial statements.
Other Matters
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Critical Accounting Policies: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates, assumptions and at times difficult,
subjective or complex judgments. Accounting policies related to the
recoverability of certain regulatory assets and the assumptions used in
developing the pension and postretirement benefit obligations are the
accounting principles that management believes are critical and could have a
significant impact on CL&P's consolidated financial statements.
Regulatory Assets: The accounting policies of the NU system's regulated
operating companies historically reflect the effects of the rate-making
process in accordance with Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." Through its cost-of-service rate regulated transmission and
distribution business, CL&P is currently recovering its investments in
long-lived assets, including regulatory assets, and management believes
that the application of SFAS No. 71 to that portion of their business
continues to be appropriate. Management must reaffirm this conclusion at
each balance sheet date. If, as a result of a change in circumstances,
it is determined that any portion of these investments is no longer
recoverable under SFAS No. 71, that portion would be written off. Such a
write-off could have a material impact on CL&P's consolidated financial
statements. Management currently believes that all long-lived assets,
including regulatory assets, are recoverable.
Pension and Postretirement Benefit Obligations: CL&P participates in a
uniform noncontributory defined benefit retirement plan covering
substantially all regular NU system employees and also provides certain
health care benefits, primarily medical and dental, and life insurance
benefits through a benefit plan to retired employees. For each of these
plans, the development of the benefit obligation, fair value of plan
assets, funded status, and net periodic benefit credit or cost is based
on several significant assumptions. These assumptions primarily relate
to the application of a discount rate, expected long-term rate of return
and other trend rates. If these assumptions were changed, the resultant
change in benefit obligations, fair values of plan assets, funded
status, and net periodic benefit credits or costs could have a material
impact on CL&P's consolidated financial statements.
For further information regarding these types of activities, see Note 1G,
"Regulatory Accounting and Assets," and Note 7, "Pension Benefits and
Postretirement Benefits Other Than Pensions," to the consolidated financial
statements.
Environmental Matters: The NU system, including CL&P, is subject to
environmental laws and regulations structured to mitigate or remove the
effect of past operations and to improve or maintain the quality of the
environment. For further information regarding environmental matters, see
Note 10B, "Commitments and Contingencies - Environmental Matters," to the
consolidated financial statements.
Other Commitments and Contingencies: For further information regarding other
commitments and contingencies, see Note 10, "Commitments and Contingencies,"
to the consolidated financial statements.
Contractual Obligations and Commercial Commitments: Aggregated information
regarding CL&P's contractual obligations and commercial commitments as of
December 31, 2001, is summarized as follows:
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(Millions of
Dollars) 2002 2003 2004 2005 2006 Totals
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Capital leases $ 2.4 $ 2.4 $ 2.4 $ 2.4 $ 2.4 $ 12.0
Operating
leases 10.9 9.3 8.2 7.5 6.4 42.3
Long-term
contractual
obligations 227.0 231.3 234.1 237.3 237.6 1,167.3
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Totals $240.3 $243.0 $244.7 $247.2 $246.4 $1,221.6
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For further information regarding CL&P's contractual obligations and commercial
commitments, see Note 3, "Leases," and Note 10E, "Long-Term Contractual
Arrangements," to the consolidated financial statements.
Forward Looking Statements: This discussion and analysis includes forward
looking statements, which are statements of future expectations and not facts
including, but not limited to, statements regarding future earnings,
refinancings, the use of proceeds from restructuring, and the recovery of
operating costs. Words such as estimates, expects, anticipates, intends,
plans, and similar expressions identify forward looking statements. Actual
results or outcomes could differ materially as a result of further actions by
state and federal regulatory bodies, competition and industry restructuring,
changes in economic conditions, changes in historical weather patterns,
changes in laws, developments in legal or public policy doctrines,
technological developments, and other presently unknown or unforeseen factors.
RESULTS OF OPERATIONS
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The components of significant income statement variances for the past two
years are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2001 over/(under) 2000 2000 over/(under) 1999
---------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
Operating Revenues $(290) (10)% $483 20%
----- ---- ---- ---
Operating Expenses:
Fuel, purchased and
net interchange power (151) (9) 738 80
Other operation (102) (25) (68) (14)
Maintenance (30) (22) (82) (38)
Depreciation (21) (18) (76) (39)
Amortization of regulatory
assets, net 649 (a) (350) (78)
Taxes other than income taxes (7) (5) (37) (21)
Gain on sale of utility plant (522) - 286 100
----- ---- ---- ---
Total operating expenses (184) (7) 411 19
----- ---- ---- ---
Operating income (106) (29) 72 24
Other income/(loss), net 75 (a) 65 74
Interest expense, net 22 23 (40) (29)
----- ---- ---- ---
Income before income
tax expense (53) (22) 177 (a)
Income tax expense (15) (15) 15 18
----- ---- ---- ---
Net income/(loss) $ (38) (26)% $162 (a)
===== ==== ==== ===
(a) Percent greater than 100.
Operating Revenues
Total revenues decreased by $290 million or 10 percent in 2001, primarily due
to lower wholesale revenues ($325 million) and lower transmission revenues
($19 million), partially offset by higher retail revenues ($57 million).
Wholesale revenues were lower primarily as a result of the sale of the
Millstone units at the end of the first quarter of 2001 and lower sales of
capacity and energy. The lower transmission revenues were partially offset by
lower transmission expenses. Retail revenues increased primarily due to
higher retail sales ($43 million) and the recovery of previously deferred fuel
costs ($19 million), partially offset by a rate decrease ($5 million). Retail
sales increased 2.4 percent compared to 2000.
Operating revenues increased by $483 million or 20 percent in 2000, primarily
due to higher wholesale revenues ($510 million), primarily as a result of the
sale of the output from Millstone 2 and 3, and the amortization of the amount
related to the transfer of certain hydroelectric generation assets ($25
million) partially offset by lower retail revenues ($51 million). Retail
revenues decreased primarily as a result of a 5 percent retail rate decrease
($108 million), partially offset by higher retail sales ($27 million) and by
the impact of Millstone 2 being returned to rate base ($30 million). Retail
sales increased by 0.4 percent in 2000.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense decreased in 2001,
primarily due to lower purchased power costs resulting from the buydown and
buyout of various cogeneration contracts and lower nuclear fuel expense.
Fuel, purchased and net interchange power expense increased in 2000,
primarily due to the transition, under industry restructuring, to purchasing
full requirements for customers from standard offer suppliers, in addition to
the remaining fuel costs of the nuclear units and cogenerators.
Other Operation and Maintenance
Other operation and maintenance (O&M) expenses decreased by $132 million in
2001, primarily due to lower nuclear expenses ($95 million) as a result of
the sale of the Millstone units at the end of the first quarter of 2001,
lower administrative and general expenses ($22 million), lower transmission
expenses ($16 million), and lower fossil/hydro expenses ($3 million),
partially offset by higher distribution expenses ($4 million).
Other O&M expenses decreased in 2000, primarily due to lower spending at the
nuclear units ($56 million), the decommissioning status of Millstone 1 ($14
million), lower expenses due to the sale of certain fossil generation assets
($65 million), and lower administrative and general expenses ($26 million),
partially offset by higher customer service expenses ($39 million).
Depreciation
Depreciation expense decreased in 2001, primarily due to the elimination of
decommissioning expenses as a result of the sale of the Millstone units at
the end of the first quarter of 2001.
Depreciation expense decreased in 2000, primarily due to the effect of
discontinuing SFAS No. 71 for the generation portion of the business and the
resulting reclassification of depreciable nuclear plant balances to
regulatory assets ($70 million), the sale of certain fossil generation assets
and the transfer of certain hydroelectric generation assets.
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net increased in 2001, primarily due to
the amortization related to the gain on the sale of the Millstone units ($524
million) and higher amortization related to securitized assets ($68 million),
stranded costs ($30 million), and other amortizations related to
restructuring ($27 million).
Amortization of regulatory assets, net decreased in 2000, primarily due to
changes in amortization levels as a result of industry restructuring ($128
million), the amortization in 1999 of the gain on the sale of fossil plants
($286 million), and the completion of the amortization of CL&P's cogeneration
deferral in the first quarter of 1999 ($6 million). These decreases were
partially offset by higher amortization associated with the reclassified
nuclear plant balances ($70 million).
Taxes Other Than Income Taxes
Taxes other than income taxes decreased in 2001, primarily due to settlement
of a property tax appeal with the City of Meriden in 2001 ($5 million) and
the reduction in property tax due to the sale of the Millstone units ($12
million), partially offset by higher gross earnings tax paid on higher
revenues ($8 million).
Taxes other than income taxes decreased in 2000, primarily due to lower
Connecticut gross earnings tax ($18 million) and lower local property taxes
($7 million).
Gain on Sale of Utility Plant
CL&P recorded a gain on the sale of its ownership share in the Millstone
units. A corresponding amount of amortization expense was recorded in 2001.
CL&P recorded a gain on the sale of its fossil generation assets in 1999.
Other Income/(Loss), Net
Other income/(loss), net increased in 2001, primarily due to the gain on the
sale of CL&P's ownership share in the Millstone units ($29 million), the
settlement, in 2000, of Millstone-related litigation, net of insurance
proceeds ($9 million), a write-off associated with the former CMEEC nuclear
entitlement ($6 million) in 2000 and higher interest income in 2001,
including the allowed return on deferred fuel balances ($10 million),
interest on an IRS tax settlement ($10 million), and interest income related
to the City of Meriden property tax refund ($2 million).
Other income/(loss), net increased in 2000, primarily due to the 1999 write-off
of stranded costs in relation to the treatment of market-based contracts
($15 million).
Interest Expense, Net
Interest expense, net increased in 2001, primarily due to interest associated
with the issuance of rate reduction certificates in 2001, partially offset by
lower interest on other long-term debt resulting from reacquisitions and
retirements of long-term debt in 2001.
Interest expense, net decreased in 2000, primarily due to reacquisitions and
retirements of long-term debt in 2000.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors
of The Connecticut Light and Power Company:
We have audited the accompanying consolidated balance sheets of The Connecticut
Light and Power Company (a Connecticut corporation and a wholly owned
subsidiary of Northeast Utilities) and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of income, comprehensive income,
common stockholder's equity and cash flows for each of the three years in the
period ended December 31, 2001. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Connecticut Light
and Power Company and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 22, 2002
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
For the Years Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues................................... $ 2,646,123 $ 2,935,922 $ 2,452,855
------------------------------------------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power....... 1,514,418 1,665,806 927,989
Other........................................... 310,477 412,230 480,138
Maintenance........................................ 106,228 136,141 217,961
Depreciation....................................... 96,212 117,305 193,776
Amortization of regulatory assets, net............. 746,693 97,315 447,776
Taxes other than income taxes...................... 130,656 137,846 174,884
Gain on sale of utility plant...................... (521,590) - (286,477)
------------------------------------------
Total operating expenses......................... 2,383,094 2,566,643 2,156,047
------------------------------------------
Operating Income..................................... 263,029 369,279 296,808
Other Income/(Loss), Net............................. 52,804 (22,224) (86,787)
------------------------------------------
Income Before Interest and Income Tax Expense........ 315,833 347,055 210,021
------------------------------------------
Interest Expense:
Interest on long-term debt......................... 59,724 89,841 127,533
Interest on rate reduction bonds................... 60,644 - -
Other interest..................................... 761 9,025 10,918
------------------------------------------
Interest expense, net............................ 121,129 98,866 138,451
------------------------------------------
Income Before Income Tax Expense..................... 194,704 248,189 71,570
Income Tax Expense................................... 84,901 100,054 85,138
------------------------------------------
Net Income/(Loss).................................... $ 109,803 $ 148,135 $ (13,568)
==========================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Income/(Loss).................................... $ 109,803 $ 148,135 $ (13,568)
------------------------------------------
Other comprehensive (loss)/income, net of tax:
Unrealized (losses)/gains on securities............ (439) 90 38
------------------------------------------
Other comprehensive (loss)/income, net of tax... (439) 90 38
------------------------------------------
Comprehensive Income/(Loss).......................... $ 109,364 $ 148,225 $ (13,530)
==========================================
</Table>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
At December 31, 2001 2000
- ---------------------------------------------------------------------------------------------
(Thousands of Dollars)
ASSETS
- ------
Current Assets:
Cash and cash equivalents.......................... $ 773 $ 5,461
Investments in securitizable assets................ 36,367 98,146
Notes receivable from affiliated companies......... 77,200 38,000
Receivables, less accumulated provision for
uncollectible accounts of $525 in 2001
and $300 in 2000.................................. 247,801 29,245
Accounts receivable from affiliated companies...... 22,134 103,763
Unbilled revenues.................................. 7,492 -
Fuel, materials and supplies, at average cost...... 33,085 36,332
Prepayments and other.............................. 17,703 32,291
---------- ----------
442,555 343,238
---------- ----------
Property, Plant and Equipment:
Electric utility.................................... 3,127,548 5,756,098
Less: Accumulated provision for depreciation..... 1,236,638 4,210,429
---------- ----------
1,890,910 1,545,669
Construction work in progress....................... 134,964 128,835
Nuclear fuel, net................................... 3,299 79,672
---------- ----------
2,029,173 1,754,176
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets................................... 1,877,191 1,835,967
Prepaid pension..................................... 233,692 170,672
Nuclear decommissioning trusts, at market........... 6,231 536,912
Other .............................................. 138,715 123,233
---------- ----------
2,255,829 2,666,784
---------- ----------
Total Assets.......................................... $4,727,557 $4,764,198
========== ==========
</Table>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
- ------------------------------------------------------------------------------------------
At December 31, 2001 2000
- ------------------------------------------------------------------------------------------
(Thousands of Dollars)
LIABILITIES AND CAPITALIZATION
- ------------------------------
Current Liabilities:
Notes payable to banks................................ $ - $ 115,000
Long-term debt and preferred stock - current portion.. - 160,000
Accounts payable...................................... 132,593 153,944
Accounts payable to affiliated companies.............. 85,057 122,106
Accrued taxes......................................... 34,823 32,901
Accrued interest...................................... 10,369 13,995
Other................................................. 62,841 161,193
---------- ----------
325,683 759,139
---------- ----------
Rate Reduction Bonds.................................... 1,358,653 -
---------- ----------
Minority Interest in Consolidated Subsidiary............ - 100,000
---------- ----------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes..................... 820,444 977,439
Accumulated deferred investment tax credits........... 95,996 99,771
Decommissioning obligation - Millstone 1.............. - 580,320
Deferred contractual obligations...................... 141,497 160,590
Other................................................. 267,900 165,307
---------- ----------
1,325,837 1,983,427
---------- ----------
Capitalization:
Long-Term Debt........................................ 824,349 1,072,688
---------- ----------
Preferred Stock....................................... 116,200 116,200
---------- ----------
Common Stockholder's Equity:
Common stock, $10 par value - authorized
24,500,000 shares; 7,584,884 shares outstanding
in 2001 and 2000................................... 75,849 75,849
Capital surplus, paid in............................ 414,018 413,192
Retained earnings................................... 286,901 243,197
Accumulated other comprehensive income.............. 67 506
---------- ----------
Common Stockholder's Equity........................... 776,835 732,744
---------- ----------
Total Capitalization.................................... 1,717,384 1,921,632
---------- ----------
Commitments and Contingencies (Note 10)
Total Liabilities and Capitalization.................... $4,727,557 $4,764,198
========== ==========
</Table>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------
Accumulated
Capital Other
Common Surplus, Retained Comprehensive Total
Stock Paid In Earnings Income/(Loss) (a)
- -----------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Balance at January 1, 1999............. $ 122,229 $ 664,156 $ 210,108 $ 378 $ 996,871
Net loss for 1999.................... (13,568) (13,568)
Cash dividends on preferred stock.... (12,832) (12,832)
Capital stock expenses, net.......... 1,442 1,442
Allocation of benefits - ESOP (b).... (30,454) (30,454)
Other comprehensive income........... 38 38
--------- ---------- -------- ------------ ----------
Balance at December 31, 1999........... 122,229 665,598 153,254 416 941,497
Net income for 2000.................. 148,135 148,135
Cash dividends on preferred stock.... (7,402) (7,402)
Cash dividends on common stock....... (72,014) (72,014)
Redemption of preferred stock........ (749) (749)
Repurchase of common stock........... (46,380) (253,620) (300,000)
Capital stock expenses, net.......... 1,963 1,963
Allocation of benefits - ESOP (b).... 21,224 21,224
Other comprehensive income........... 90 90
--------- ---------- -------- ------------ ----------
Balance at December 31, 2000........... 75,849 413,192 243,197 506 732,744
Net income for 2001.................. 109,803 109,803
Cash dividends on preferred stock.... (5,559) (5,559)
Cash dividends on common stock....... (60,072) (60,072)
Capital stock expenses, net.......... 826 826
Allocation of benefits - ESOP (b).... (468) (468)
Other comprehensive loss............. (439) (439)
--------- ---------- -------- ------------ ----------
Balance at December 31, 2001........... $ 75,849 $ 414,018 $ 286,901 $ 67 $ 776,835
========= ========== ========= ============== ==========
</Table>
(a) The company has a dividend restriction as well as two tests it must meet
before it can pay out any dividends. The most restrictive of which limits
the company's ability to pay out approximately $253.8 of equity at
December 31, 2001.
(b) In June 1999, CL&P paid NU parent $30.5 million for NU shares issued from
1992 through 1998 on behalf of its employees in accordance with NU's 401(k)
plan. This transaction resulted in a reduction of the NU parent loss and
a tax benefit to CL&P. The amount in 2000 represents the remaining
previously unallocated 1993 through 1999 NU parent losses.
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Activities:
Net income/(loss)............................................. $ 109,803 $ 148,135 $ (13,568)
Adjustments to reconcile to net cash flows
provided by operating activities:
Depreciation................................................ 96,212 117,305 193,776
Deferred income taxes and investment tax credits, net....... (144,559) 5,672 (140,459)
Amortization of regulatory assets, net...................... 746,693 97,315 447,776
Tax benefit for 1993-1999 from
reduction in NU parent losses............................... - 21,461 -
Gain on sale of utility plant............................... (521,590) - (286,477)
Net other uses of cash...................................... (132,911) (69,454) (106,396)
Changes in working capital:
Receivables and unbilled revenues, net...................... (144,419) (109,938) 837
Fuel, materials and supplies................................ 3,247 1,271 34,379
Accounts payable............................................ (58,400) 171,729 (49,477)
Accrued taxes............................................... 1,922 (136,313) 149,818
Investments in securitizable assets......................... 61,779 9,474 52,633
Other working capital (excludes cash)....................... 26,440 3,204 16,585
----------- --------- ---------
Net cash flows provided by operating activities................. 44,217 259,861 299,427
----------- --------- ---------
Investing Activities:
Investments in regulated plant:
Electric utility plant........................................ (237,423) (208,249) (180,982)
Nuclear fuel................................................ (1,992) (35,709) (26,198)
----------- --------- ---------
Net cash flows used for investments in regulated plant........ (239,415) (243,958) (207,180)
Investment in NU system Money Pool............................ (39,200) (38,000) 6,600
Investments in nuclear decommissioning trusts................. (74,866) (25,133) (54,582)
Other investment activities, net.............................. (10,164) 10,246 (355)
Net proceeds from the sale of utility plant................... 827,681 686,807 516,912
Buyout/buydown of IPP contracts............................... (1,029,008) - -
----------- --------- ---------
Net cash flows (used in)/provided by investing activities....... (564,972) 389,962 261,395
----------- --------- ---------
Financing Activities:
Repurchase of common stock.................................... - (300,000) -
Issuance of rate reduction bonds.............................. 1,438,400 - -
Retirement of rate reduction bonds............................ (79,747) - -
Net (decrease)/increase in short-term debt.................... (115,000) 13,300 91,700
Reacquisitions and retirements of long-term debt.............. (416,155) (179,071) (620,010)
Reacquisitions and retirements of preferred stock............. - (99,539) (19,750)
Retirement of monthly income preferred securities............. (100,000) - -
Retirement of capital lease obligation........................ (145,800) - -
Cash dividends on preferred stock............................. (5,559) (7,402) (12,832)
Cash dividends on common stock................................ (60,072) (72,014) -
----------- --------- ---------
Net cash flows provided by/(used in) financing activities....... 516,067 (644,726) (560,892)
----------- --------- ---------
Net (decrease)/increase in cash and cash equivalents ........... (4,688) 5,097 (70)
Cash and cash equivalents - beginning of year................... 5,461 364 434
----------- --------- ---------
Cash and cash equivalents - end of year......................... $ 773 $ 5,461 $ 364
=========== ========= =========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized.......................... $ 120,645 $ 96,735 $ 142,398
=========== ========= =========
Income taxes.................................................. $ 230,144 $ 226,380 $ 19,754
=========== ========= =========
Increase in obligations:
Niantic Bay Fuel Trust........................................ $ 1,754 $ 6,535 $ 4,752
============ ========= =========
</Table>
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
NOTES TO C0NSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. About The Connecticut Light and Power Company
The Connecticut Light and Power Company (CL&P or the company) along
with the Public Service Company of New Hampshire (PSNH), Western
Massachusetts Electric Company (WMECO), North Atlantic Energy
Corporation (NAEC), Holyoke Water Power Company (HWP), and Yankee
Energy System, Inc. (Yankee) are the operating companies comprising
the Northeast Utilities system (NU system) and are wholly owned by
Northeast Utilities (NU). The NU system furnishes franchised retail
electric service in Connecticut, New Hampshire and western
Massachusetts through CL&P, PSNH and WMECO. NAEC sells all of its
entitlement to the capacity and output of the Seabrook Station
nuclear unit (Seabrook) to PSNH under the terms of two life-of-
unit, full cost recovery contracts (Seabrook Power Contracts). HWP
also is engaged in the production of electric power. Yankee, the
parent company of Yankee Gas Services Company (Yankee Gas), is
Connecticut's largest natural gas distribution system.
NU is registered with the Securities and Exchange Commission (SEC)
as a holding company under the Public Utility Holding Company Act
of 1935 (1935 Act) and the NU system, including CL&P, is subject to
the provisions of the 1935 Act. Arrangements among the NU system
companies, outside agencies and other utilities covering
interconnections, interchange of electric power and sales of
utility property are subject to regulation by the Federal Energy
Regulatory Commission (FERC) and/or the SEC. CL&P is subject to
further regulation for rates, accounting and other matters by the
FERC and the Connecticut Department of Public Utility Control (DPUC).
Several wholly owned subsidiaries of NU provide support services
for the NU system companies, including CL&P, and, in some cases,
for other New England utilities. Northeast Utilities Service
Company (NUSCO) provides centralized accounting, administrative,
engineering, financial, information resources, legal, operational,
planning, purchasing, and other services to the NU system
companies, including CL&P. North Atlantic Energy Service
Corporation has operational responsibility for Seabrook. In
addition, CL&P has established two special purpose subsidiaries,
one whose operations are solely related to the issuance of rate
reduction certificates and one whose business consists solely of
the purchase and resale of receivables.
B. Presentation
The consolidated financial statements of CL&P include the accounts
of all subsidiaries. Intercompany transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain reclassifications of prior years' data have been made to
conform with the current year's presentation.
All transactions among affiliated companies are on a recovery of
cost basis which may include amounts representing a return on
equity and are subject to approval by various federal and state
regulatory agencies and the DPUC.
C. New Accounting Standards
Asset Retirement Obligations: In June 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs and
applies to (a) all entities and (b) 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 is effective for CL&P's 2003 calendar year. Upon
adoption of SFAS No. 143, there may be an impact on CL&P's
consolidated financial statements which management has not estimated
at this time.
Long-Lived Assets: In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."
This statement modifies financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS No. 144 is
effective for CL&P's 2002 calendar year. Currently, management
does not expect the adoption of SFAS No. 144 to have a material
impact on CL&P's consolidated financial statements.
D. Investments and Jointly Owned Electric Utility Plant
Regional Nuclear Generating Companies: CL&P owns common stock in
four regional nuclear companies (Yankee Companies). CL&P's
ownership interests in the Yankee Companies at December 31, 2001
and 2000, which are accounted for on the equity method due to
CL&P's ability to exercise significant influence over their
operating and financial policies are 34.5 percent of the
Connecticut Yankee Atomic Power Company (CYAPC), 24.5 percent of
the Yankee Atomic Electric Company (YAEC), 12 percent of the Maine
Yankee Atomic Power Company (MYAPC), and 9.5 percent of the Vermont
Yankee Nuclear Power Corporation (VYNPC). CL&P's total equity
investment in the Yankee Companies at December 31, 2001 and 2000,
is $34.7 million and $41.4 million, respectively. Each Yankee
Company owns a single nuclear generating unit. However, VYNPC is
the only unit still in operation at December 31, 2001.
Seabrook: CL&P has a 4.06 percent joint ownership interest in
Seabrook, a 1,148 megawatt nuclear generating unit. CL&P expects to
sell its joint ownership interest in Seabrook, jointly with NAEC,
around the end of 2002 through a public auction.
Plant-in-service and the accumulated provision for depreciation for
CL&P's share of Millstone 2 and 3 and Seabrook are as follows:
---------------------------------------------------------------------
At December 31, 2001 2000
---------------------------------------------------------------------
(Millions of Dollars)
Plant-in-service:
Millstone 2.............................. $ - $ 779.7
Millstone 3.............................. - 1,924.7
Seabrook................................. 174.7 174.7
Accumulated provision for depreciation:
Millstone 2.............................. $ - $ 779.1
Millstone 3.............................. - 1,815.0
Seabrook................................. 164.8 164.0
---------------------------------------------------------------------
E. Depreciation
The provision for depreciation is calculated using the straight-
line method based on the estimated remaining useful lives of
depreciable utility plant-in-service, adjusted for salvage value
and removal costs, as approved by the appropriate regulatory agency
where applicable. Depreciation rates are applied to plant-in-
service from the time they are placed in service. When plant is
retired from service, the original cost of the plant, including
costs of removal less salvage, is charged to the accumulated
provision for depreciation. The depreciation rates for the several
classes of electric plant-in-service are equivalent to a composite
rate of 3.1 percent in 2001, 3 percent in 2000 and 3.3 percent in
1999.
As a result of discontinuing the application of SFAS No. 71
"Accounting for the Effects of Certain Types of Regulation," for
CL&P's generation business in 1999, including CL&P's ownership
interest in Seabrook, the company recorded a charge to accumulated
depreciation for the nuclear plant in excess of the estimated fair
market value at the time in the amount of $1.7 billion and a
corresponding regulatory asset was created.
F. Revenues
Revenues are based on authorized rates applied to each customer's
use of energy. In general, rates can be changed only through a
formal proceeding before the DPUC. Regulatory commissions also
have authority over the terms and conditions of nontraditional rate-
making arrangements.
At the end of each accounting period, CL&P accrues a revenue estimate
for the amount of energy delivered but unbilled.
G. Regulatory Accounting and Assets
The accounting policies of CL&P conform to accounting principles
generally accepted in the United States applicable to rate-
regulated enterprises and historically reflect the effects of the
rate-making process in accordance with SFAS No. 71.
CL&P's transmission and distribution business continues to be cost-
of-service rate regulated, and management believes the application
of SFAS No. 71 continues to be appropriate. Management also
believes it is probable that CL&P will recover its investments in
long-lived assets, including regulatory assets. Stranded costs for
CL&P will be recovered through a transition charge over a 12-year
period.
In addition, the regulatory assets in the following table are
earning a return. The components of CL&P's regulatory assets are as
follows:
---------------------------------------------------------------------
At December 31, 2001 2000
---------------------------------------------------------------------
(Millions of Dollars)
Recoverable nuclear costs............... $ 158.1 $1,122.4
Securitized regulatory assets........... 1,356.3 -
Income taxes, net....................... 154.2 371.9
Unrecovered contractual obligations..... 2.1 171.8
Recoverable energy costs, net........... 80.1 85.2
Other................................... 126.4 84.7
---------------------------------------------------------------------
Totals.................................. $1,877.2 $1,836.0
---------------------------------------------------------------------
As a result of discontinuing the application of SFAS No. 71 for
CL&P's generation business, the company had an unamortized balance
($1.21 billion and $1.35 billion), included in recoverable nuclear
costs at December 31, 2001 and 2000, respectively. These amounts
were the result of reclassified nuclear plant in excess of its
estimated fair market value from plant to regulatory assets, which
took place in 1999. This balance is offset by the unamortized
balance of the deferred credit on the transfer of assets, in March
2000, to Northeast Generation Company (NGC) of approximately $541.5
million. Since the transfer occurred between CL&P and NGC, two
affiliates, the deferred credit is eliminated in consolidation.
In March 2001, CL&P sold its ownership interest in the Millstone
units. The gain on this sale in the amount of approximately $521.6
million was used to offset recoverable nuclear costs, resulting in an
unamortized balance of $148.9 million, after the current year's
amortization expense. Also included in that regulatory asset
component for 2001 and 2000 are $9.2 million and $344.3 million,
respectively, which includes Millstone 1 recoverable nuclear
costs relating to the recoverable portion of the undepreciated
plant and related assets ($9.2 million and $51.2 million,
respectively) and the decommissioning and closure obligations
($293.1 million in 2000).
CL&P issued $1.4 billion in rate reduction certificates and used
$1.1 billion of those proceeds to buyout or buydown certain
contracts with independent power producers. The majority of the
payments to buyout or buydown these contracts were recorded as
securitized regulatory assets. CL&P also securitized a portion of
its SFAS No. 109 regulatory asset.
CL&P, under the terms of contracts with the Yankee Companies, is
responsible for its proportionate share of the remaining costs of
the units, including decommissioning. These amounts are recorded
as unrecovered contractual obligations. A portion of these
obligations was securitized in 2001 and is included in
securitized regulatory assets.
CL&P, under the Energy Policy Act of 1992 (Energy Act), is assessed
for its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (DOE) (D&D Assessment). The Energy Act requires
that regulators treat D&D Assessments as a reasonable and necessary
current cost of fuel, to be fully recovered in rates like any other
fuel cost. CL&P is currently recovering these costs through rates.
As of December 31, 2001 and 2000, the CL&P's total D&D Assessment
deferrals were $21.1 million and $24.1 million, respectively, and
have been recorded as recoverable energy costs, net.
In addition, through December 31, 1999, CL&P had an energy
adjustment clause under which fuel prices above or below base-
rate levels were charged to or credited to customers. Coincident
with the start of restructuring, the energy adjustment clause was
terminated. Energy costs deferred and not yet collected under
the energy adjustment clause amounted to $59 million and $61.1
million at December 31, 2001 and 2000, respectively, which have
been recorded as recoverable energy costs, net.
H. Income Taxes
The tax effect of temporary differences (differences between the
periods in which transactions affect income in the financial
statements and the periods in which they affect the determination
of taxable income) is accounted for in accordance with the rate-
making treatment of the applicable regulatory commissions.
The tax effect of temporary differences, including timing
differences accrued under previously approved accounting standards,
that give rise to the accumulated deferred tax obligation,
including the impact of the sale of the Millstone units, is as
follows:
---------------------------------------------------------------------
At December 31, 2001 2000
---------------------------------------------------------------------
(Millions of Dollars)
Accelerated depreciation and
other plant-related differences........ $279.1 $271.2
Regulatory assets:
Nuclear stranded investment............ 276.1 528.8
Securitized contract termination
costs and other...................... 63.4 -
Income tax gross-up.................... 134.4 142.6
Other.................................... 67.4 34.8
---------------------------------------------------------------------
Totals................................... $820.4 $977.4
---------------------------------------------------------------------
I. Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term cash
investments which are highly liquid in nature and have original
maturities of three months or less.
J. Other Income/(Loss), Net
The components of CL&P's other income/(loss), net items are as
follows:
---------------------------------------------------------------------
For the Years Ended December 31,
---------------------------------------------------------------------
2001 2000 1999
---------------------------------------------------------------------
(Millions of Dollars)
Gain related to
Millstone sale.................. $29.5 $ - $ -
Other nuclear-related costs....... - (14.1) (53.0)
Other, net........................ 23.3 (8.1) (33.8)
---------------------------------------------------------------------
Totals............................ $52.8 $(22.2) $(86.8)
---------------------------------------------------------------------
2. SHORT-TERM DEBT
Limits: The amount of short-term borrowings that may be incurred by CL&P
is subject to periodic approval by either the SEC under the 1935 Act or
by the respective state regulators. Currently, SEC authorization allows
CL&P to incur total short-term borrowings up to a maximum of $375
million. In addition, the charter of CL&P contains preferred stock
provisions restricting the amount of unsecured debt the company may
incur. As of December 31, 2001, CL&P's charter permits CL&P to incur
$535 million of additional unsecured debt.
Credit Agreement: On November 16, 2001, CL&P, PSNH, WMECO, and Yankee
Gas entered into a 364-day unsecured revolving credit facility for $350
million. This facility replaced a $250 million facility for CL&P and
WMECO which expired on November 16, 2001. CL&P may draw up to $150
million under the facility, subject to the maximum facility limit of
$350 million. Unless extended, the credit facility will expire on
November 15, 2002. At December 31, 2001 and 2000, there were no
borrowings and $115 million, respectively, in borrowings under these
facilities for CL&P.
Under the aforementioned credit agreement, CL&P may borrow at fixed or
variable rates plus an applicable margin based upon certain debt
ratings, as rated by the lower of Standard and Poor's or Moody's
Investors Service. The weighted average interest rate on CL&P's notes
payable to banks outstanding on December 31, 2000, was 8.41 percent.
This credit agreement provides that CL&P must comply with certain
financial and nonfinancial covenants as are customarily included in such
agreements, including, but not limited to, consolidated debt ratios and
interest coverage ratios. CL&P currently is and expects to remain in
compliance with these covenants.
Money Pool: Certain subsidiaries of NU, including CL&P, are members of
the Northeast Utilities System Money Pool (Pool). The Pool provides a
more efficient use of the cash resources of the NU system and reduces
outside short-term borrowings. NUSCO administers the Pool as agent for
the member companies. Short-term borrowing needs of the member
companies are first met with available funds of other member companies,
including funds borrowed by NU parent. NU parent may lend to the Pool
but may not borrow. Funds may be withdrawn from or repaid to the Pool
at any time without prior notice. Investing and borrowing subsidiaries
receive or pay interest based on the average daily federal funds rate.
Borrowings based on loans from NU parent, however, bear interest at NU
parent's cost and must be repaid based upon the terms of NU parent's
original borrowing. At December 31, 2001 and 2000, CL&P had $77.2
million and $38 million of lendings to the Pool, respectively. The
interest rate on lendings to the Pool at December 31, 2001 and 2000, was
1.5 percent and 5.4 percent, respectively.
3. LEASES
CL&P has entered into lease agreements, some of which are capital
leases, for the use of data processing and office equipment, vehicles,
nuclear control room simulators, and office space. The provisions of
these lease agreements generally provide for renewal options.
Capital lease rental payments charged to operating expense were $9.2
million in 2001, $36.3 million in 2000, and $10 million in 1999.
Interest included in capital lease rental payments was $3.4 million in
2001, $7.9 million in 2000, and $9.4 million in 1999. Operating lease
rental payments charged to expense were $7.1 million in 2001, $9.8
million in 2000, and $14.3 million in 1999.
Future minimum rental payments, excluding executory costs such as
property taxes, state use taxes, insurance, and maintenance, under long-
term noncancelable leases, as of December 31, 2001, are as follows:
--------------------------------------------------------------------------
Year Capital Leases Operating Leases
--------------------------------------------------------------------------
(Millions of Dollars)
2002......................... $ 2.4 $10.9
2003......................... 2.4 9.3
2004......................... 2.4 8.2
2005......................... 2.4 7.5
2006......................... 2.4 6.4
After 2006................... 24.7 11.9
--------------------------------------------------------------------------
Future minimum
lease payments............. 36.7 $54.2
Less amount
representing
interest................... 20.7
--------------------------------------------------------------------------
Present value of
future minimum
lease payments........... $16.0
--------------------------------------------------------------------------
4. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemption are as
follows:
- -------------------------------------------------------------------------------
December 31, Shares
2001 Outstanding December 31,
Redemption December 31, --------------------
Description Price 2001 2001 2000
- -------------------------------------------------------------------------------
(Millions of Dollars)
$1.90 Series of 1947 $52.50 163,912 $ 8.2 $ 8.2
$2.00 Series of 1947 54.00 336,088 16.8 16.8
$2.04 Series of 1949 52.00 100,000 5.0 5.0
$2.20 Series of 1949 52.50 200,000 10.0 10.0
3.90% Series of 1949 50.50 160,000 8.0 8.0
$2.06 Series E of 1954 51.00 200,000 10.0 10.0
$2.09 Series F of 1955 51.00 100,000 5.0 5.0
4.50% Series of 1956 50.75 104,000 5.2 5.2
4.96% Series of 1958 50.50 100,000 5.0 5.0
4.50% Series of 1963 50.50 160,000 8.0 8.0
5.28% Series of 1967 51.43 200,000 10.0 10.0
$3.24 Series G of 1968 51.84 300,000 15.0 15.0
6.56% Series of 1968 51.44 200,000 10.0 10.0
- -------------------------------------------------------------------------------
Totals................................................ $116.2 $116.2
- -------------------------------------------------------------------------------
5. LONG-TERM DEBT
Details of long-term debt outstanding are as follows:
--------------------------------------------------------------------------
At December 31, 2001 2000
--------------------------------------------------------------------------
(Millions of Dollars)
First Mortgage Bonds:
7 7/8% Series A due 2001...................... $ - $160.0
7 3/4% Series C due 2002...................... - 200.0
8 1/2% Series C due 2024...................... 59.0 115.0
7 7/8% Series D due 2024...................... 139.8 140.0
------ ------
198.8 615.0
Pollution Control Notes:
Variable rate, due 2016-2022................ 46.4 46.4
Variable rate, tax exempt, due 2028-2031.... 377.5 377.5
Fees and interest due for spent nuclear
fuel disposal costs......................... 201.9 194.7
Less amounts due within one year.............. - 160.0
Unamortized premium and discount, net......... (0.3) (0.9)
--------------------------------------------------------------------------
Long-term debt, net........................... $824.3 $1,072.7
--------------------------------------------------------------------------
Essentially all utility plant of CL&P is subject to the liens of the
company's first mortgage bond indenture.
CL&P has secured $315.5 million of pollution control notes secured by
second mortgage liens on transmission assets, junior to the liens of
their first mortgage bond indentures.
CL&P has $62 million of tax-exempt Pollution Control Revenue Bonds
(PCRBs) with bond insurance secured by the first mortgage bonds and a
liquidity facility. For financial reporting purposes, these first
mortgage bonds would not be considered outstanding unless CL&P failed to
meet its obligations under the PCRBs.
The average effective interest rates on the variable-rate pollution
control notes ranged from 1.3 percent to 3.6 percent for 2001 and from
3.2 percent to 4.9 percent for 2000.
6. INCOME TAX EXPENSE
The components of the federal and state income tax provisions were
charged/(credited) to operations as follows:
--------------------------------------------------------------------------
For the Years Ended December 31, 2001 2000 1999
--------------------------------------------------------------------------
(Millions of Dollars)
Current income taxes:
Federal.............................. $190.7 $ 77.2 $197.7
State................................ 38.8 17.2 27.9
------ ------ ------
Total current...................... 229.5 94.4 225.6
------ ------ ------
Deferred income taxes, net:
Federal.............................. (117.0) 10.6 (113.0)
State................................ (23.8) 2.4 (20.1)
------ ------ ------
Total deferred..................... (140.8) 13.0 (133.1)
------ ------ ------
Investment tax credits, net............ (3.8) (7.3) (7.4)
--------------------------------------------------------------------------
Total income tax expense............... $ 84.9 $100.1 $ 85.1
--------------------------------------------------------------------------
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
--------------------------------------------------------------------------
For the Years Ended December 31, 2001 2000 1999
--------------------------------------------------------------------------
(Millions of Dollars)
Depreciation, leased nuclear
fuel, settlement credits and
disposal costs....................... $ (9.2) $13.8 $ (9.9)
Regulatory deferral.................... (33.1) (14.1) 6.2
State net operating loss carryforward.. - - 7.8
Regulatory disallowance................ - - (24.2)
Sale of generation assets.............. (197.6) - (126.1)
Pension accruals....................... 19.9 13.6 9.8
Securitized contract
termination costs and other.......... 63.4 - -
Other.................................. 15.8 (0.3) 3.3
--------------------------------------------------------------------------
Deferred income taxes, net............. $(140.8) $13.0 $(133.1)
--------------------------------------------------------------------------
A reconciliation between income tax expense and the expected tax expense
at the statutory rate is as follows:
--------------------------------------------------------------------------
For the Years Ended December 31, 2001 2000 1999
--------------------------------------------------------------------------
(Millions of Dollars)
Expected federal income tax............ $68.1 $ 86.9 $25.0
Tax effect of differences:
Depreciation......................... 4.0 5.8 27.1
Amortization of regulatory assets.... (0.6) 3.6 31.9
Investment tax credit amortization... (3.8) (7.3) (7.4)
State income taxes, net of
federal benefit.................... 9.8 12.7 5.1
Other, net........................... 7.4 (1.6) 3.4
--------------------------------------------------------------------------
Total income tax expense............... $84.9 $100.1 $85.1
--------------------------------------------------------------------------
7. PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The NU system companies, including CL&P, participate in a uniform
noncontributory defined benefit retirement plan covering substantially
all regular NU system employees. Benefits are based on years of service
and the employees' highest eligible compensation during 60 consecutive
months of employment. CL&P's portion of the NU system's total pension
credit, part of which was credited to utility plant, was $63.7 million
in 2001, $57.2 million in 2000 and $40.3 million in 1999.
Currently, CL&P's policy is to annually fund an amount at least equal to
that which will satisfy the requirements of the Employee Retirement
Income Security Act and Internal Revenue Code.
The NU system companies, including CL&P, also provide certain health
care benefits, primarily medical and dental, and life insurance benefits
through a benefit plan to retired employees. These benefits are
available for employees retiring from CL&P who have met specified
service requirements. For current employees and certain retirees, the
total benefit is limited to two times the 1993 per retiree health care
cost. These costs are charged to expense over the estimated work life
of the employee. CL&P annually funds postretirement costs through
external trusts with amounts that have been rate-recovered and which
also are tax deductible.
Pension and trust assets are invested primarily in domestic and
international equity securities and bonds.
The following table represents information on the plans' benefit
obligation, fair value of plan assets, and the respective plans' funded
status:
<Table>
<Caption>
----------------------------------------------------------------------------
At December 31,
-------------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
-------------------------------------------------------------------------------
(Millions of Dollars) 2001 2000 2001 2000
-------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation
at beginning of year........... $(587.3) $ (551.9) $(136.3) $(131.9)
Service cost..................... (10.0) (9.7) (1.9) (1.9)
Interest cost.................... (43.7) (42.3) (11.1) (10.1)
Transfers........................ (2.4) (4.9) - -
Actuarial loss................... (25.1) (18.9) (32.2) (5.2)
Benefits paid.................... 45.1 40.4 16.0 12.8
Settlements and other............ (2.6) - (0.2) -
-------------------------------------------------------------------------------
Benefit obligation
at end of year................. $(626.0) $ (587.3) $(165.7) $(136.3)
-------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets
at beginning of year........... $ 998.8 $1,037.8 $ 62.4 $ 59.7
Actual return on plan assets..... (45.7) (3.5) (5.8) 3.0
Employer contribution............ - - 14.5 12.5
Benefits paid.................... (45.1) (40.4) (16.0) (12.8)
Transfers........................ 2.4 4.9 0.6 -
-------------------------------------------------------------------------------
Fair value of plan assets
at end of year................. $ 910.4 $ 998.8 $ 55.7 $ 62.4
-------------------------------------------------------------------------------
Funded status at December 31..... $ 284.4 $ 411.5 $ (110.0) $ (73.9)
Unrecognized transition
(asset)/obligation............. (2.7) (3.7) 80.3 88.2
Unrecognized prior service cost.. 27.6 30.4 - -
Unrecognized net (gain)/loss..... (75.6) (267.5) 29.1 (14.3)
-------------------------------------------------------------------------------
Prepaid/(accrued) benefit cost... $ 233.7 $ 170.7 $ (0.6) $ -
-------------------------------------------------------------------------------
</Table>
The following actuarial assumptions were used in calculating the plans'
year end funded status:
--------------------------------------------------------------------------
At December 31,
--------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
--------------------------------------------------------------------------
2001 2000 2001 2000
--------------------------------------------------------------------------
Discount rate.................. 7.25% 7.50% 7.25% 7.50%
Compensation/progression rate.. 4.25 4.50 4.25 4.50
Health care cost
trend rate (a)............... N/A N/A 11.00 5.26
--------------------------------------------------------------------------
(a) The annual per capita cost of covered health care benefits was
assumed to decrease to 5.00 percent by 2007.
The components of net periodic benefit (credit)/cost are:
<Table>
<Caption>
----------------------------------------------------------------------------------------
For the Years Ended December 31,
----------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
----------------------------------------------------------------------------------------
(Millions of Dollars) 2001 2000 1999 2001 2000 1999
----------------------------------------------------------------------------------------
Service cost................ $10.0 $ 9.7 $ 11.0 $ 1.9 $ 1.9 $ 2.3
Interest cost............... 43.7 42.3 40.0 11.1 10.1 9.3
Expected return
on plan assets............ (95.3) (88.4) (78.1) (5.5) (4.9) (4.2)
Amortization of
unrecognized net
transition (asset)/
obligation................ (0.9) (0.9) (0.9) 7.3 7.3 7.3
Amortization of
prior service cost........ 2.6 2.7 2.7 - - -
Amortization of
actuarial gain............. (21.4) (22.6) (15.0) - - -
Other amortization, net..... - - - (0.5) (1.9) (1.3)
Settlements and other....... (2.4) - - - - -
----------------------------------------------------------------------------------------
Net periodic benefit
(credit)/cost............. $(63.7) $(57.2) $(40.3) $14.3 $12.5 $13.4
----------------------------------------------------------------------------------------
</Table>
For calculating pension and postretirement benefit costs, the following
assumptions were used:
--------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
--------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
--------------------------------------------------------------------------
Discount rate............. 7.50% 7.75% 7.00% 7.50% 7.75% 7.00%
Expected long-term
rate of return.......... 9.50 9.50 9.50 N/A N/A N/A
Compensation/
progression rate........ 4.50 4.75 4.25 4.50 4.75 4.25
Long-term rate
of return -
Health assets,
net of tax.......... N/A N/A N/A 7.50 7.50 7.50
Life assets........... N/A N/A N/A 9.50 9.50 9.50
--------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. The effect of changing the
assumed health care cost trend rate by one percentage point in each year
would have the following effects:
--------------------------------------------------------------------------
One Percentage One Percentage
(Millions of Dollars) Point Increase Point Decrease
--------------------------------------------------------------------------
Effect on total service and
interest cost components.......... $0.5 $(0.5)
Effect on postretirement
benefit obligation............... $6.1 $(5.6)
--------------------------------------------------------------------------
The trust holding the health plan assets is subject to federal income
taxes.
8. SALE OF CUSTOMER RECEIVABLES
On July 11, 2001, CL&P renewed its accounts receivable securitization
credit line for one year. At that time, the credit line capacity was
reduced from $200 million to $100 million.
As of December 31, 2001, CL&P had no amounts outstanding through the
CL&P Receivables Corporation (CRC), a wholly owned subsidiary of CL&P.
As of December 31, 2000, CL&P had sold accounts receivable of $170
million to a third-party purchaser with limited recourse through the
CRC. In addition, at December 31, 2000, $18.9 million of accounts
receivable were designated as collateral under the agreement with the CRC.
Concentrations of credit risk to the purchaser under the company's
agreement with respect to the receivables are limited due to CL&P's
diverse customer base within its service territory.
9. NUCLEAR GENERATION ASSETS DIVESTITURE
On March 31, 2001, CL&P and WMECO consummated the sale of Millstone 1
and 2 to a subsidiary of Dominion Resources, Inc., Dominion Nuclear
Connecticut, Inc. (DNCI). CL&P, PSNH and WMECO sold their ownership
interests in Millstone 3 to DNCI. This sale included all of the
respective joint ownership interests of CL&P, PSNH and WMECO in
Millstone 3. CL&P received approximately $800 million of cash proceeds
from the sale and applied the proceeds to taxes and reductions of debt
and equity. As part of the sale, DNCI assumed responsibility for
decommissioning the three Millstone units.
In connection with the sale, CL&P recorded a gain in the amount of
approximately $521.6 million which was used to offset stranded costs.
10. COMMITMENTS AND CONTINGENCIES
A. Restructuring
On September 27, 2001, CL&P filed its application with the DPUC for
approval of the disposition of the proceeds from the sale of the
Millstone units to DNCI. This application described and requested
DPUC approval for CL&P's treatment of its share of the proceeds
from the sale. In accordance with Connecticut's electric utility
industry restructuring legislation, CL&P was required to utilize
any gains from the Millstone sale to offset stranded costs. There
are certain contingencies related to this filing regarding the
potential disallowance of what management believes were prudently
incurred costs. Management believes the recoverability of these
costs is probable. A decision from the DPUC is expected in the
first half of 2002.
B. Environmental Matters
The NU system, including CL&P, is subject to environmental laws and
regulations structured to mitigate or remove the effect of past
operations and to improve or maintain the quality of the
environment. As such, the NU system, including CL&P, has active
environmental auditing and training programs and believes it is
substantially in compliance with the current laws and regulations.
However, the normal course of operations may involve activities and
substances that expose CL&P to potential liabilities of which
management cannot determine the outcome. Additionally, management
cannot determine the outcome for liabilities that may be imposed
for past acts, even though such past acts may have been lawful at
the time they occurred. Management does not believe, however, that
this will have a material impact on CL&P's consolidated financial
statements.
Based upon currently available information for the estimated
remediation costs as of December 31, 2001 and 2000, the liability
recorded by CL&P for its estimated environmental remediation costs
amounted to $2.5 million and $5.2 million, respectively.
C. Spent Nuclear Fuel Disposal Costs
Under the Nuclear Waste Policy Act of 1982, CL&P must pay the DOE
for the disposal of spent nuclear fuel and high-level radioactive
waste. The DOE is responsible for the selection and development of
repositories for, and the disposal of, spent nuclear fuel and high-
level radioactive waste. For nuclear fuel used to generate
electricity prior to April 7, 1983 (Prior Period Fuel), an accrual
has been recorded for the full liability and payment must be made
prior to the first delivery of spent fuel to the DOE. Until such
payment is made, the outstanding balance will continue to accrue
interest at the 3-month treasury bill yield rate. As of December 31,
2001 and 2000, fees due to the DOE for the disposal of Prior
Period Fuel were $201.9 million and $194.7 million, respectively,
including interest costs of $135.4 million and $128.1 million,
respectively.
Fees for nuclear fuel burned on or after April 7, 1983, are billed
currently to customers and paid to the DOE on a quarterly basis.
CL&P remains responsible for fees to be paid for fuel burned until
the divestiture of the Millstone and Seabrook nuclear units.
D. Nuclear Insurance Contingencies
Insurance policies covering CL&P's ownership share of the NU
system's nuclear facilities have been purchased for the primary
cost of repair, replacement or decontamination of utility property,
certain extra costs incurred in obtaining replacement power during
prolonged accidental outages and the excess cost of repair,
replacement or decontamination or premature decommissioning of
utility property.
CL&P is subject to retroactive assessments if losses under those
policies exceed the accumulated funds available to the insurer.
The maximum potential assessments with respect to losses arising
during the current policy year for the primary property insurance
program, the replacement power policies and the excess property
damage policies are $1.1 million, $0.1 million and $1.6 million,
respectively. In addition, insurance has been purchased by the NU
system in the aggregate amount of $200 million on an industry basis
for coverage of worker claims.
Under certain circumstances, in the event of a nuclear incident at
one of the nuclear facilities covered by the federal government's
third-party liability indemnification program, the NU system,
including CL&P, could be assessed liabilities in proportion to its
ownership interest in each of its nuclear units up to $83.9
million. The NU system's payment of this assessment would be
limited to, in proportion to its ownership interest in each of its
nuclear units, $10 million in any one year per nuclear unit. In
addition, if the sum of all claims and costs from any one nuclear
incident exceeds the maximum amount of financial protection, the NU
system, including CL&P, would be subject to an additional 5
percent, or $4.2 million, liability, in proportion to its ownership
interests in each of its nuclear units. Based upon its ownership
interest in Seabrook, CL&P's maximum liability, including any
additional assessments, would be $3.6 million per incident, of
which payments would be limited to $0.4 million per year. In
addition, through purchased-power contracts with VYNPC, CL&P would
be responsible for up to an additional assessment of $8.4 million
per incident, of which payments would be limited to $1 million per
year.
CL&P expects to terminate its nuclear insurance upon the
divestiture of its remaining nuclear units.
E. Long-Term Contractual Arrangements
Yankee Companies: Under the terms of its agreement, CL&P paid its
ownership (or entitlement) shares of costs, which included
depreciation, operation and maintenance (O&M) expenses, taxes, the
estimated cost of decommissioning, and a return on invested
capital. These costs were recorded as purchased-power expenses.
CL&P's cost of purchases under its contract with VYNPC amounted to
$14.7 million in 2001, $14.5 million in 2000, and $17 million in
1999. VYNPC is in the process of selling its nuclear unit. Upon
completion of the sale, it is expected that these long-term
contracts will be replaced with different contracts with the new
buyer.
Energy Procurement Contracts: CL&P has entered into various
arrangements for the purchase of capacity and energy. CL&P's total
cost of purchases under these arrangements amounted to $205 million
in 2001, $308.6 million in 2000 and $293.8 million in 1999.
Hydro-Quebec: Along with other New England utilities, CL&P has
entered into an agreement to support transmission and terminal
facilities to import electricity from the Hydro-Quebec system in
Canada. CL&P is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M expenses and
capital costs of those facilities.
Estimated Annual Costs: The estimated annual costs of CL&P's
significant long-term contractual arrangements, absent the effects
of any contract terminations, buydowns or buyouts, or sales of
generation assets are as follows:
---------------------------------------------------------------------
2002 2003 2004 2005 2006 Totals
---------------------------------------------------------------------
(Millions of Dollars)
VYNPC........... $ 18.4 $ 17.5 $ 19.9 $ 20.2 $ 18.3 $ 94.3
Energy
Procurement
Contracts..... 193.2 199.0 200.0 203.4 206.9 1,002.5
Hydro-Quebec.... 15.4 14.8 14.2 13.7 12.4 70.5
---------------------------------------------------------------------
Totals.......... $227.0 $231.3 $234.1 $237.3 $237.6 $1,167.3
---------------------------------------------------------------------
11. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS
Seabrook: CL&P's operating nuclear power plant, Seabrook, has a service
life that is expected to end in 2026, and upon retirement, must be
decommissioned. CL&P's ownership share of the estimated cost of
decommissioning Seabrook, in year end 2001 dollars, is $22.6 million.
Nuclear decommissioning costs are accrued over the expected service life
of the unit and are included in depreciation expense and the accumulated
provision for depreciation. Nuclear decommissioning expenses for
Seabrook amounted to $0.8 million in 2001, 2000 and 1999. Through
December 31, 2001 and 2000, total decommissioning expenses of $5.9
million and $5.1 million, respectively, have been collected from
customers related to Seabrook and are reflected in the accumulated
provision for depreciation. Payments for CL&P's ownership share of the
cost of decommissioning Seabrook are paid to an independent
decommissioning financing fund managed by the state of New Hampshire.
As of December 31, 2001 and 2000, $5.4 million and $4.6 million,
respectively, have been transferred to external decommissioning trusts.
Earnings on the decommissioning trust increase the decommissioning trust
balance and the accumulated provision for depreciation. Unrealized
gains and losses associated with the decommissioning trust also impact
the balance of the trust and the accumulated provision for depreciation.
The fair values of the amounts in the Seabrook external decommissioning
trust were $6.2 million and $5.8 million at December 31, 2001 and 2000,
respectively. Upon divestiture, the balance in the Seabrook
decommissioning trust will be transferred to the buyer.
Yankee Companies: VYNPC owns and operates a nuclear generating unit with
a service life that is expected to end in 2012. CL&P's ownership share
of estimated costs, in year end 2001 dollars, of decommissioning this
unit is $44.7 million. In August 2001, VYNPC agreed to sell its nuclear
generating unit for $180 million, including $35 million for nuclear
fuel, to an unaffiliated company. Among other commitments, the
acquiring company agreed to assume the obligation to decommission the
unit after it is taken out of service and agreed to provide the current
level of output from the unit through 2012. The sale is subject to the
approval of the Vermont Public Service Board, the Nuclear Regulatory
Commission, the FERC and other regulatory authorities. The closing on
the sale is expected to be in the first half of 2002.
As of December 31, 2001 and 2000, CL&P's remaining estimated obligations,
including decommissioning for the units owned by CYAPC, YAEC and MYAPC,
which have been shut down was $141.5 million and $160.6 million,
respectively.
12. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
CL&P Capital LP (CL&P LP), a subsidiary of CL&P, previously had issued
$100 million of cumulative 9.3 percent Monthly Income Preferred
Securities (MIPS), Series A. CL&P has the sole ownership interest in
CL&P LP, as a general partner, and was the guarantor of the MIPS
securities. Subsequent to the MIPS issuance, CL&P LP loaned the
proceeds of the MIPS issuance, along with CL&P's $3.1 million capital
contribution, back to CL&P in the form of an unsecured debenture. CL&P
consolidates CL&P LP for financial reporting purposes. Upon
consolidation, the unsecured debenture was eliminated, and the MIPS
securities were accounted for as a minority interest. In the second
quarter of 2001, CL&P repaid the $100 million in notes associated with
the MIPS.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each of the following financial instruments:
Cash and Cash Equivalents: The carrying amounts approximate fair value
due to the short-term nature of cash and cash equivalents.
Nuclear Decommissioning Trusts: CL&P's portion of the investments held
in the NU system companies' nuclear decommissioning trusts were marked-
to-market by a negative $0.1 million as of December 31, 2001, and a
positive $83.2 million as of December 31, 2000, with corresponding
offsets to the accumulated provision for depreciation. In conjunction
with the sale of the Millstone units to DNCI in March 2001, CL&P's
Millstone decommissioning trusts were transferred to DNCI.
Preferred Stock and Long-Term Debt: The fair value of CL&P's fixed-rate
securities is based upon the quoted market price for those issues or
similar issues. Adjustable rate securities are assumed to have a fair
value equal to their carrying value. The carrying amounts of CL&P's
financial instruments and the estimated fair values are as follows:
--------------------------------------------------------------------------
At December 31, 2001
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
Preferred stock not subject
to mandatory redemption.................. $ 116.2 $ 62.4
Long-term debt -
First mortgage bonds..................... 198.8 212.8
Other long-term debt..................... 625.8 615.1
Rate reduction bonds....................... 1,358.7 1,388.3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
At December 31, 2000
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
Preferred stock not subject
to mandatory redemption.................. $116.2 $139.7
Long-term debt -
First mortgage bonds..................... 615.0 621.6
Other long-term debt..................... 618.6 576.4
MIPS....................................... 100.0 100.5
--------------------------------------------------------------------------
14. OTHER COMPREHENSIVE INCOME
The accumulated balance for each other comprehensive income item is as
follows:
--------------------------------------------------------------------------
Current
December 31, Period December 31,
(Millions of Dollars) 2000 Change 2001
--------------------------------------------------------------------------
Unrealized gains
on securities................ $0.8 $(0.4) $0.4
Minimum pension
liability adjustments........ (0.3) - (0.3)
--------------------------------------------------------------------------
Accumulated other
comprehensive income/(loss).. $0.5 $(0.4) $0.1
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Current
December 31, Period December 31,
(Millions of Dollars) 1999 Change 2000
--------------------------------------------------------------------------
Unrealized gains
on securities............... $0.7 $0.1 $0.8
Minimum pension
liability adjustments....... (0.3) - (0.3)
--------------------------------------------------------------------------
Accumulated other
comprehensive income........ $0.4 $0.1 $0.5
--------------------------------------------------------------------------
The changes in the components of other comprehensive income are reported
net of the following income tax effects:
--------------------------------------------------------------------------
(Millions of Dollars) 2001 2000 1999
--------------------------------------------------------------------------
Unrealized gains
on securities............... $0.3 $(0.1) $ -
Minimum pension
liability adjustments....... - - -
--------------------------------------------------------------------------
Other comprehensive
income/(loss)............... $0.3 $(0.1) $ -
--------------------------------------------------------------------------
15. SEGMENT INFORMATION
The NU system is organized between regulated utilities (electric and gas
since March 1, 2000) and competitive energy subsidiaries. CL&P is
included in the regulated utilities segment of the NU system and has no
other reportable segments.
The Connecticut Light and Power Company and Subsidiaries
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues.................... $2,646,123 $2,935,922 $2,452,855 $2,386,864 $2,465,587
Net Income/(Loss)..................... 109,803 148,135 (13,568) (195,725) (139,597)
Cash Dividends on Common Stock........ 60,072 72,014 - - 5,989
Total Assets.......................... 4,727,557 4,764,198 5,298,284 6,050,198 6,081,223
Rate Reduction Bonds.................. 1,358,653 - - - -
Long-Term Debt(a)..................... 824,349 1,232,688 1,400,056 2,007,957 2,043,327
Preferred Stock Not Subject
to Mandatory Redemption............. 116,200 116,200 116,200 116,200 116,200
Preferred Stock Subject to
Mandatory Redemption (a)............ - - 99,539 119,289 155,000
</Table>
<Table>
<Caption>
- ---------------------------------------------------------------------------------------
CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited)
- ---------------------------------------------------------------------------------------
Quarter Ended
- ---------------------------------------------------------------------------------------
2001 March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues $733,905 $610,275 $675,578 $626,365
======== ======== ======== ========
Operating Income $ 65,096 $ 68,114 $ 63,103 $ 66,716
======== ======== ======== ========
Net Income $ 38,300 $ 18,812 $ 18,824 $ 33,867
======== ======== ======== ========
- ---------------------------------------------------------------------------------------
2000
- ---------------------------------------------------------------------------------------
Operating Revenues $747,976 $683,585 $748,143 $756,218
======== ======== ======== ========
Operating Income $114,612 $ 70,082 $ 93,157 $ 91,428
======== ======== ======== ========
Net Income $ 49,643 $ 19,186 $ 27,908 $ 51,398
======== ======== ======== ========
</Table>
(a) Includes portion due within one year.
The Connecticut Light and Power Company and Subsidiaries
- -------------------------------------------------------------------------------
CONSOLIDATED STATISTICS (Unaudited)
- -------------------------------------------------------------------------------
Average
Gross Electric Annual
Utility Plant Use Per
December 31, kWh Residential Electric
(Thousands of Sales Customer Customers Employees
Dollars) (Millions) (kWh) (Average) December 31,
- -------------------------------------------------------------------------------
2001 3,265,811 $32,645 8,884 1,153,234 2,160
2000 5,964,605 42,179 8,976 1,121,551 2,057
1999 6,007,421 29,317 8,969 1,120,846 2,377
1998 6,345,215 27,356 8,476 1,111,370 2,379
1997 6,639,786 25,766 8,526 1,103,309 2,163