10-KPeriod: FY2003

EVERSOURCE ENERGY Annual Report, Year Ended Dec 31, 2003

Filed March 12, 2004For Securities:ES

Summary

This 2003 Form 10-K filing for Northeast Utilities (NU) details significant operational and financial developments for the company and its subsidiaries, which include The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), and Western Massachusetts Electric Company (WMECO). A major theme is the ongoing restructuring of the electric industry in Connecticut, Massachusetts, and New Hampshire. The company's regulated electric and gas operations remain the core business, providing essential services to millions of customers. However, NU also operates competitive energy businesses through its subsidiary, NU Enterprises, Inc. (NUEI), engaged in energy marketing, generation, and services. Key financial aspects highlighted include the company's financing programs for 2003 and projected requirements for 2004. NU and its subsidiaries are managing significant capital expenditures for infrastructure improvements and system expansion. The report also addresses the complexities of regulatory environments, including stranded cost recovery, rate adjustments, and evolving market designs like the Standard Market Design (SMD) in New England. The company's competitive businesses, particularly Select Energy, are navigating a dynamic wholesale and retail energy market, facing both opportunities and risks associated with market volatility and credit quality of counterparties.

Key Highlights

  • 1Electric industry restructuring is significantly impacting NU's core utility operations in Connecticut, Massachusetts, and New Hampshire, with ongoing efforts to recover stranded costs and adapt to new market structures.
  • 2NU's competitive energy business, primarily through Select Energy, generated substantial revenues ($2.3 billion in 2003) but also incurred losses, partly due to a significant after-tax write-off related to a contract settlement.
  • 3The company is actively managing its financing needs, with projected capital expenditures of approximately $840 million for 2004, funded through a mix of debt issuances and existing credit facilities.
  • 4Regulatory proceedings are a critical focus, with ongoing discussions and filings concerning rate cases, transmission access, federally mandated congestion costs (FMCCs), and the development of a New England Regional Transmission Organization (RTO-NE).
  • 5The company faces ongoing legal proceedings, including significant litigation related to the proposed merger with Con Edison and various environmental and contractual disputes.
  • 6NU is managing substantial decommissioning liabilities for former nuclear generation assets, with estimated remaining costs of approximately $469 million as of December 31, 2003.
  • 7Environmental regulations are a key consideration, with ongoing investments and liabilities related to air and water quality, hazardous materials, and compliance with stringent emission standards.

Frequently Asked Questions

Electric industry restructuring, particularly in Connecticut, Massachusetts, and New Hampshire, is a major focus. NU's utility subsidiaries are adapting to new market structures, including customer choice and the need to recover stranded costs. While this transition presents challenges, the company is working to secure regulatory approvals for rate adjustments and cost recovery mechanisms. The competitive energy businesses are also navigating these changes, with performance influenced by market dynamics and regulatory frameworks.

Select Energy, NU's primary competitive energy marketing arm, faces risks such as market price volatility, counterparty creditworthiness, and evolving market designs like the Standard Market Design (SMD). However, it also has opportunities in retail and wholesale marketing, having generated significant revenues. The company reported losses in 2003, impacted by a substantial write-off, but forecasts modest profitability for its retail marketing business in 2004. Success hinges on margin management, contract portfolio, and new business acquisition.

For 2004, NU projects system aggregate capital requirements of approximately $840 million, primarily for construction and capital improvement projects focused on maintaining and expanding transmission and distribution systems. The company plans moderate system financings, including potential debt issuances by CL&P and PSNH. NU's financing plans are subject to various financial limitations and regulatory approvals.

NU faces several legal proceedings, including a major merger dispute with Con Edison and various contractual and environmental litigation. Environmentally, the company has recorded liabilities for investigation and remediation costs at former manufactured gas plant sites and other locations, totaling approximately $40.8 million as of December 31, 2003. Additionally, NU has significant decommissioning cost obligations for former nuclear generation assets, with estimated remaining costs of about $469 million.