10-KPeriod: FY2002

EVERSOURCE ENERGY Annual Report, Year Ended Dec 31, 2002

Filed March 21, 2003For Securities:ES

Summary

This 10-K filing for EVERSOURCE ENERGY (then Northeast Utilities) for the fiscal year ending December 31, 2002, highlights the significant ongoing transition within the electric utility industry due to deregulation and restructuring. The company's core business remains the delivery of electricity and natural gas to customers in Connecticut, Massachusetts, and New Hampshire through its regulated subsidiaries. However, a substantial portion of the filing details the complex landscape of electric industry restructuring, including the divestiture of generation assets, the establishment of competitive energy businesses, and the company's efforts to navigate stranded cost recovery. The filing also addresses significant capital expenditures, financing plans, and ongoing regulatory and legal matters. Investors should pay close attention to the company's ability to manage the financial implications of deregulation, particularly in relation to stranded cost recovery, potential market risks in its competitive energy businesses, and the impact of new market designs like the Standard Market Design (SMD) in New England. The company's financial health and future outlook are closely tied to its success in adapting to these evolving market and regulatory environments.

Key Highlights

  • 1Significant progress made in divesting regulated generation assets, with CL&P and WMECO operating solely as transmission and distribution companies, while PSNH's divestiture is delayed.
  • 2The company is actively managing stranded costs resulting from industry restructuring, with mechanisms like rate reduction bonds (RRBs) and rate reduction certificates (RRCs) in place for recovery.
  • 3The competitive energy businesses, primarily Select Energy, generated substantial revenue but incurred significant losses in 2002, highlighting market volatility and challenging credit conditions.
  • 4The company is undertaking a substantial construction and capital improvement program, with an estimated $640 million in expenditures for 2003, primarily focused on transmission and distribution system upgrades.
  • 5The introduction of the Standard Market Design (SMD) in New England, including Locational Marginal Pricing (LMP), is expected to introduce new complexities and potential costs related to transmission congestion.
  • 6The company is subject to various regulatory and environmental matters, including ongoing litigation, environmental remediation liabilities (particularly related to former manufactured gas plant sites), and decommissioning costs for nuclear facilities.
  • 7The company's financing program for 2003 projects moderate levels of system financings, with plans for debt issuance by CL&P, WMECO, and Yankee Gas to refinance existing obligations and fund capital requirements.

Frequently Asked Questions

The primary impact of electric industry restructuring has been the divestiture of generation assets, transforming CL&P and WMECO into solely transmission and distribution companies. This shift necessitates robust strategies for recovering stranded costs, which are expenditures incurred with the expectation of future rate recovery. The company is utilizing mechanisms like rate reduction bonds and certificates to manage this recovery.

The competitive energy businesses, particularly Select Energy, face risks related to market volatility, price fluctuations, challenging credit conditions in the energy market, and the impact of new market designs like the Standard Market Design (SMD). These factors contributed to significant losses in the competitive segment during 2002, despite substantial revenues.

Eversource Energy has recorded a liability of approximately $42 million as of December 31, 2002, for estimated environmental remediation costs at 48 sites, with a significant portion related to 29 former manufactured gas plant (MGP) sites. These liabilities are subject to ongoing evaluation, and costs could increase if alternative remedies become necessary. The company also faces liabilities at five Superfund sites.

The company projects substantial capital expenditures for 2003, totaling approximately $640 million, primarily for maintaining, upgrading, and expanding its transmission and distribution systems. For financing, moderate levels of system financings are projected for 2003, with plans for CL&P, WMECO, and Yankee Gas to issue debt to refinance obligations and support capital programs.