10-Q/APeriod: Q3 FY2004

EVERSOURCE ENERGY Quarterly Report (Amendment) for Q3 Ended Sep 30, 2004

Filed March 17, 2005For Securities:ES

Summary

Eversource Energy (formerly Northeast Utilities) has filed an amended quarterly report (10-Q/A) for the period ending September 30, 2004. The primary focus of this amendment is the restatement of financial statements due to the incorrect application of accounting principles for certain natural gas contracts within the merchant energy segment. The company now recognizes that fair value accounting, rather than accrual or hedge accounting, should have been applied to these derivatives. This restatement significantly impacted the reported financial results, particularly for the third quarter of 2004, leading to a net loss of $7.9 million ($0.06 per share) compared to a profit in the prior year's period. While the company's regulated utility operations showed stable performance, the merchant energy segment experienced volatility due to these accounting adjustments and market conditions. The company is also undertaking significant capital expenditures, particularly in transmission and distribution infrastructure, and is managing several regulatory and legal matters.

Key Highlights

  • 1Restatement of Financial Statements: The company restated its financial results for the period ending September 30, 2004, due to an accounting error related to natural gas derivative contracts in its merchant energy segment, moving from accrual/hedge accounting to fair value accounting.
  • 2Third Quarter Net Loss: The company reported a net loss of $7.9 million ($0.06 per share) for the third quarter of 2004, a significant decrease from the $39.2 million ($0.31 per share) net income in the same period of 2003, largely due to the accounting restatement.
  • 3Utility Group Performance: The regulated utility segment (comprising CL&P, PSNH, WMECO, and Yankee Gas) demonstrated steady performance, with earnings increasing year-over-year for the first nine months of 2004, supported by rate increases and regulatory approvals.
  • 4NU Enterprises Volatility: The merchant energy segment (NU Enterprises) experienced significant volatility, including a reported $47 million after-tax impact from the mark-to-market accounting of natural gas contracts, contributing to the overall net loss.
  • 5Capital Expenditure Plans: The company plans substantial investments of over $3.7 billion in regulated electric and natural gas infrastructure from 2005 through 2009 to meet reliability requirements and customer growth.
  • 6Regulatory and Legal Matters: The company is actively managing various regulatory proceedings, including rate case filings, transmission line approvals, and legal disputes, such as the ongoing litigation with Bechtel regarding nuclear plant decommissioning.
  • 7Material Weakness in Internal Controls: The accounting error identified led to the conclusion of a material weakness in NU's internal controls over financial reporting as of September 30, 2004.

Frequently Asked Questions

The primary reason for this amended filing (10-Q/A) is to restate the previously issued financial statements for the period ending September 30, 2004. This restatement was necessary because the company identified an error in accounting for certain natural gas contracts within its merchant energy segment, concluding that fair value accounting should have been applied instead of accrual or hedge accounting.

The restatement significantly impacted the company's earnings. For the third quarter of 2004, Northeast Utilities reported a net loss of $7.9 million ($0.06 per share), a sharp decline from the net income of $39.2 million ($0.31 per share) reported for the same period in 2003. This shift from profit to loss is largely attributable to the mark-to-market accounting adjustments for the natural gas contracts.

The company plans to invest heavily in its regulated infrastructure, with over $3.7 billion projected for electric and natural gas infrastructure from 2005 through 2009. This investment is intended to enhance reliability and accommodate customer growth, particularly in transmission and distribution businesses.

Yes, the identified accounting error led management to conclude that there was a material weakness in Northeast Utilities' internal controls over financial reporting as of September 30, 2004. The company is in the process of enhancing its controls and procedures to address this weakness.