UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM U-9C-3
QUARTERLY REPORT PURSUANT TO RULE 58
For the quarterly period ended December 31, 2002
Northeast Utilities
-----------------------------------
(Name of registered holding company)
107 Selden Street, Berlin, CT 06037
-----------------------------------
(Address of principal executive offices)
Name and telephone number of officer to whom inquiries concerning this report
should be directed:
John P. Stack, Vice President - Accounting and Controller
Telephone Number: 860-665-2333
GENERAL INSTRUCTIONS
A. Use of Form
1. A reporting company, as defined herein, shall file a report on this
form within 60 days after the end of each of the first three quarters,
and within 90 days after the end of the fourth quarter, of the fiscal
year of the registered holding company. The period beginning on the
date of effectiveness of rule 58 and ending at the end of the quarter
following the quarter in which the rule becomes effective shall
constitute the initial period for which any report shall be filed,
if applicable.
2. The requirement to provide specific information by means of this form
supersedes any requirement by order of the Commission to provide
identical information by means of periodic certificates under rule 24;
but does not so supersede and replace any requirement by order to
provide information by means of an annual report on Form U-13-60.
3. Information with respect to reporting companies that is required by
Form U-13-60 shall be provided exclusively on that form.
4. Notwithstanding the specific requirements of this form, this Commission
may informally request such further information as, in its opinion, may
be necessary or appropriate.
B. Statements of Monetary Amounts and Deficits
1. Amounts included in this form and in related financial statements may
be expressed in whole dollars, thousands of dollars or hundred
thousands of dollars.
2. Deficits and other similar entries shall be indicated by either
brackets or parentheses. An explanation should be provided by
footnote.
C. Formal Requirements
This form, including exhibits, shall be filed with Commission
electronically pursuant to Regulation S-T (17 CFR 232.10 et seq.). A
conformed copy of each such report shall be filed with each state
commission having jurisdiction over the retail rates of a public utility
company that is an associate company of a reporting company. Each report
shall provide the name and telephone number of the person to whom inquiries
concerning the report should be directed.
D. Definitions
As used in this form, the word "reporting company" means an energy-related
company or gas-related company, as defined in rule 58(b). All other words
and terms have the same meaning as in the Public Utility Holding Company
Act of 1935, as amended, and the rules and regulations thereunder.
ITEM 1 - ORGANIZATION CHART
------------------------------------------------------------------------------
Instructions
------------
1. Complete Item 1 only for the first three calendar quarters of the fiscal
year of the registered holding company.
2. Under the caption "Name of Reporting Company," list each energy-related and
gas-related company and each system company that directly or indirectly
holds securities thereof. Add the designation "(new)" for each reporting
company of which securities were acquired during the period, and the
designation "(*)" for each inactive company.
3. Under the caption "Percentage of Voting Securities Held," state the
aggregate percentage of the outstanding voting securities of the reporting
company held directly or indirectly by the registered holding company at the
end of the quarter.
4. Provide a narrative description of each reporting company's activities
during the reporting period.
-------------------------------------------------------------------------------
4th quarter not required.
ITEM 2 - ISSUANCES AND RENEWALS OF SECURITIES AND CAPITAL CONTRIBUTIONS
------------------------------------------------------------------------------
Instruction
-----------
With respect to a transaction with an associate company, report
only the type and principal amount of securities involved.
------------------------------------------------------------------------------
Person
Company Type of Principal to Whom Collateral Consideration Company Amount of
Issuing Security Amount of Issue or Cost of Security Given With Received for Contributing Capital
Security Issued Security Renewal Capital Was Issued Security Each Security Capital Contribution
--------------- -------- ------------ -------- ------- ------------ ---------- ------------- ------------ -------------
Select
Energy, Inc. No transactions this quarter.
Northeast
Generation
Services
Company No transactions this quarter.
Select Energy
Contracting,
Inc. No transactions this quarter.
Reeds Ferry
Supply Co.,
Inc. No transactions this quarter.
HEC/Tobyhanna
Energy
Project, Inc. No transactions this quarter.
Yankee Energy
Services
Company No transactions this quarter.
R. M.
Services, Inc. No transactions this quarter.
ERI/HEC
EFA-Med, LLC No transactions this quarter.
E.S. Boulos
Company No transactions this quarter.
NGS Mechanical
Company No transactions this quarter.
HEC/CJTS
Energy
Center LLC No transactions this quarter.
Select Energy
New York, Inc. No transactions this quarter.
Woods Electrical
Company, Inc. No transactions this quarter.
Northeast
Utilities No transactions this quarter.
ITEM 3 - ASSOCIATE TRANSACTIONS
-------------------------------------------------------------------------------
Instructions
------------
1. This item is used to report the performance during the quarter of contracts
among reporting companies and their associate companies, including other
reporting companies, for service, sales and construction. A copy of any
such contract not filed previously should be provided as an exhibit pursuant
to Item 6.B.
2. Parts I and II concern transactions performed by reporting companies on
behalf of associate companies, and transactions performed by associate
companies on behalf of reporting companies, respectively.
-------------------------------------------------------------------------------
Part I - Transactions performed by reporting companies on behalf
of associate companies.
Total Amount
Billed*
Reporting Associate
Company Company Types of Three Months
Rendering Receiving Services Ended
Services Services Rendered December 31, 2002
----------------------- ------------------------ -------------- -------------------
(Thousands
of Dollars)
Northeast Northeast
Generation Generation Electrical and
Services Company Company Mechanical services $ 5,750
=================
Northeast
Generation Electrical and
Services Company E. S. Boulos Mechanical services $ 10
=================
Northeast
Generation Northeast Utilities Electrical and
Services Company Service Company Mechanical services $ 52
=================
Northeast The Connecticut
Generation Light and Power Electrical and
Services Company Company Mechanical services $ 127
=================
Northeast
Generation Holyoke Water Electrical and
Services Company Power Company Mechanical services $ 3,313
=================
Northeast Western
Generation Massachusetts Electrical and
Services Company Electric Company Mechanical services $ 1
=================
Northeast
Generation Select Energy Electrical and
Services Company Services, Inc. Mechanical services $ 586
=================
Northeast Public Service
Generation Company of Electrical and
Services Company New Hampshire Mechanical services $ 1,299
=================
Northeast
Generation Yankee Energy Electrical and
Services Company Services Company Mechanical services $ 31
=================
Reeds Ferry Select Energy Wholesale Purchasing
Supply Co., Inc. Contracting, Inc. Services $ 184
=================
Select Energy Select Energy Wholesale Purchasing
Services, Inc. New York, Inc. Services $ 23
=================
Select Energy Northeast Generation Wholesale Purchasing
Services, Inc. Services Company Services $ 1
=================
Select Energy Northeast Utilities Wholesale Purchasing
Services, Inc. Service Company Services $ 2
=================
The Connecticut
Select Energy Light and Power Wholesale Purchasing
Services, Inc. Company Services $ 9
=================
Northeast Generation Wholesale Purchasing
E. S. Boulos Services Company Services $ 148
=================
*Total Amount Billed is for direct costs only.
Part II - Transactions performed by associate companies on behalf of
reporting companies.
Total Amount
Billed*
Associate Reporting
Company Company Types of Three Months
Rendering Receiving Services Ended
Services Services Rendered December 31, 2002
----------------------- ------------------------ -------------- -------------------
(Thousands
of Dollars)
Northeast Generation Northeast Generation
Company Services Company Miscellaneous $ 434
=================
Public Service
Company of Northeast Generation
New Hampshire Services Company Miscellaneous $ 2
=================
Public Service
Company of Select Energy,
New Hampshire Inc. Miscellaneous $ 5
=================
The Connecticut
Light and Power Northeast Generation
Company Services Company Miscellaneous $ 25
=================
The Connecticut
Light and Power Select Energy,
Company Inc. Miscellaneous $ 2
=================
Holyoke Water Northeast Generation
Power Company Services Company Miscellaneous $ 348
=================
Western
Massachusetts Northeast Generation
Electric Company Services Company Miscellaneous $ 22
=================
Western
Massachusetts Select Energy,
Electric Company Inc. Miscellaneous $ 1
=================
Northeast Utilities Select Energy
Service Company New York, Inc. Miscellaneous $ 35
=================
Northeast Utilities Northeast Generation
Service Company Services Company Miscellaneous $ 1,378
=================
Northeast Utilities Select Energy,
Service Company Inc. Miscellaneous $ 3,555
=================
Northeast Utilities Yankee Energy
Service Company Services Company Miscellaneous $ 7
=================
* Total Amount Billed is for direct costs only.
ITEM 4 - SUMMARY OF AGGREGATE INVESTMENT
Investments in energy-related companies:
-------------------------------------------
(Thousands of Dollars)
Total consolidated capitalization as of 12/31/02 $6,626,083 line 1
Total capitalization multiplied by 15%
(line 1 multiplied by .15) 993,912 line 2
Greater of $50 million or line 2 $993,912 line 3
Total current aggregate investment:
(categorized by major line of
energy-related business):
Select Energy, Inc. $ 615,092
Northeast Generation Services Company 37,568
Select Energy Contracting, Inc. 28,961
Select Energy New York, Inc. 30,685
Woods Electrical Co., Inc. 9,655
Reeds Ferry Supply Co., Inc. 7
HEC/Tobyhanna Energy Project, Inc. -
Yankee Energy Services Company 7,882
E.S. Boulos Company 11,197
R.M. Services, Inc. 13,799
NGS Mechanical, Inc. 10
Acumentrics Corporation 7,500
ERI/HEC EFA-Med, LLC 9
HEC/CJTS Energy Center LLC 12
----------
Current aggregate investment 762,377
--------
Elimination * 22,525
--------
Total current aggregate investment 739,852 line 4
--------
Difference between the greater of $50 million or 15%
of capitalization and the total aggregate investment
of the registered holding company system $254,060 line 5
========
*Elimination is for capital contributions made from a parent company who is a
reporting company to a subsidiary who is also a reporting company.
ITEM 5 - OTHER INVESTMENTS
-------------------------------------------------------------------------------
Instruction
-----------
This item concerns investments in energy-related and gas-related companies that
are excluded from the calculation of aggregate investment under rule 58.
-------------------------------------------------------------------------------
Major Line Other Other
of Energy- Investment Investment
Related in Last in This Reason for Difference
Business U-9C-3 Report U-9C-3 Report in Other Investment
------------- ------------- ------------- ------------------------
NONE
ITEM 6 - FINANCIAL STATEMENTS AND EXHIBITS
-------------------------------------------------------------------------------
Instructions
-------------------------------------------------------------------------------
A. Financial Statements
1. Financial statements are required for reporting companies in which
the registered holding company system has at least 50% equity or
other ownership interest. For all other rule 58 companies, the
registered holding company shall make available to the Commission
such financial statements as are available to it.
2. For each reporting company, provide a balance sheet as of the end
of the quarter and income statements for the three-month and year-
to-date periods ending as of the end of the quarter, together with
any notes thereto. Financial statements shall be for the first
three quarters of the fiscal year of the registered holding
company.
3. If a reporting company and each of its subsidiaries engage
exclusively in single category of energy-related or gas-related
activity, consolidated financial statements may be filed.
4. Separate financial statements need not be filed for inactive
companies or for companies engaged solely in the ownership of
interests in energy-related or gas-related companies.
B. Exhibits
1. Copies of contracts required to be provided by Item 3 shall be
filed as exhibits.
2. A certificate stating that a copy of the report for the previous
quarter has been filed with interested state commissions shall be
filed as an exhibit. The certificate shall provide the names and
addresses of the state commissions.
-------------------------------------------------------------------------------
A. Financial Statements
Select Energy, Inc.:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
Northeast Generation Services Company:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
Select Energy Contracting, Inc.:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
Reeds Ferry Supply Co., Inc.:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
HEC/Tobyhanna Energy Project, Inc.:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
Yankee Energy Services Company:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
ERI/HEC EFA-Med, LLC:
Not available as of December 31, 2002
E. S. Boulos Company:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
NGS Mechanical, Inc.:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
Select Energy New York, Inc.:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
HEC/CJTS Energy Center LLC:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
Woods Electrical Co., Inc.:
Balance Sheet - As of December 31, 2002
Income Statement - Three months and twelve months ended December 31, 2002
Northeast Utilities Parent:
4th quarter not required
B. Exhibits
Exhibit No. Description
----------- -----------
6.B.1.1 Copy of contract required by Item 3 - filed under confidential
treatment pursuant to Rule 104(b).
6.B.1.2a Copy of contract required by Item 3 - filed under confidential
treatment pursuant to Rule 104(b).
6.B.1.2b Copy of contract required by Item 3 - filed under confidential
treatment pursuant to Rule 104(b).
6.B.1.2c Copy of contract required by Item 3 - filed under confidential
treatment pursuant to Rule 104(b).
6.B.1.2d Copy of contract required by Item 3 - filed under confidential
treatment pursuant to Rule 104(b).
6.B.1.3 Copy of contract required by Item 3 - filed under confidential
treatment pursuant to Rule 104(b).
6.B.2.1 The company certifies that a conformed copy of Form U-9C-3 for
the previous quarter was filed with the following state
commissions:
Ms. Louise E. Rickard
Acting Executive Secretary
Department of Public Utility Control
10 Franklin Square
New Britain, CT 06051
Ms. Mary L. Cottrell, Secretary
Massachusetts Department of Telecommunications and Energy
100 Cambridge Street
Boston, MA 02202
Mr. Thomas B. Getz
Executive Director and Secretary
State of New Hampshire
Public Utilities Commission
8 Old Suncook Road, Building One
Concord, NH 03301-7319
SELECT ENERGY, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
--------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 2,454
Receivables, net 415,918
Accounts receivable from affiliated companies 118,780
Special deposits 72
Derivative assets 101,957
Prepaid wholesale power purchases 19,906
Prepayments and other 38,057
-------------
697,144
-------------
Property, Plant and Equipment:
Competitive energy 12,629
Less: Accumulated depreciation 7,373
-------------
5,256
Construction work in progress 3,965
-------------
9,221
-------------
Deferred Debits and Other Assets:
Intangibles, net 18,032
Prepaid pension 2,257
Other 89,642
-------------
109,931
-------------
Total Assets $ 816,296
=============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
-------------
(Thousands
of Dollars)
LIABILITIES AND CAPITALIZATION
-------------------------------
Current Liabilities:
Notes payable to affiliated companies $ 217,200
Accounts payable 387,458
Accounts payable to affiliated companies 10,244
Accrued taxes 19,838
Derivative liabilities 61,204
Other 22,069
------------
718,013
------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 13,240
Other 49,114
------------
62,354
------------
Capitalization:
Common Stockholder's Equity:
Common stock, $1 par value - 20,000 shares
authorized and 100 shares outstanding -
Capital surplus, paid in 249,337
Accumulated deficit (225,781)
Accumulated other comprehensive income 12,373
------------
Common Stockholder's Equity 35,929
------------
Total Capitalization 35,929
------------
Total Liabilities and Capitalization $ 816,296
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY, INC.
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------- -------------
(Thousands of Dollars)
Operating Revenues $ 397,527 $ 1,250,212
------------- -------------
Operating Expenses:
Purchased power, net interchange
power and capacity 427,411 1,335,869
Other 13,083 55,933
Depreciation and amortization 2,698 8,875
Taxes other than income taxes 673 4,509
------------- -------------
Total operating expenses 443,865 1,405,186
------------- -------------
Operating Loss (46,338) (154,974)
Interest Expense, Net 1,349 5,179
Other Income, Net 6,491 17,210
------------- -------------
Loss Before Income Tax Benefit (41,196) (142,943)
Income Tax Benefit (18,414) (61,065)
------------- -------------
Net Loss $ (22,782) $ (81,878)
============= =============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
NORTHEAST GENERATION SERVICES COMPANY
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 1
Receivables, net 5,731
Accounts receivable from affiliated companies 4,098
Taxes receivable 686
Unbilled revenues 1,301
Fuel, materials and supplies, at average cost 5
Prepayments and other 1,964
-------------
13,786
-------------
Property, Plant and Equipment:
Competitive energy 2,980
Less: Accumulated depreciation 826
-------------
2,154
Construction work in progress 508
-------------
2,662
-------------
Deferred Debits and Other Assets:
Accumulated deferred income taxes 314
Prepaid pension 926
Intangible assets, net and other 22,717
-------------
23,957
-------------
Total Assets $ 40,405
=============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
NORTHEAST GENERATION SERVICES COMPANY
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
LIABILITIES AND CAPITALIZATION
------------------------------
Current Liabilities:
Notes payable to affiliated companies $ 13,500
Accounts payable 3,014
Accounts payable to affiliated companies 1,421
Other 1,226
--------------
19,161
--------------
Deferred Credits and Other Liabilities 699
--------------
Capitalization:
Long-Term Debt 5,000
--------------
Common Stockholder's Equity:
Common stock, $1 par value - 20,000 shares
authorized and 100 shares outstanding -
Capital surplus, paid in 15,549
Retained earnings 9
Accumulated comprehensive loss (13)
--------------
Common Stockholder's Equity 15,545
--------------
Total Capitalization 20,545
--------------
Total Liabilities and Capitalization $ 40,405
==============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
NORTHEAST GENERATION SERVICES COMPANY
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ --------------
(Thousands of Dollars)
Operating Revenues $ 9,003 $ 52,733
------------- -------------
Operating Expenses:
Operation -
Other 11,627 46,899
Maintenance 2,553 12,486
Depreciation and amortization 36 104
Taxes other than income taxes 419 1,841
------------- -------------
Total operating expenses 14,635 61,330
------------- -------------
Operating Loss (5,632) (8,597)
Interest Expense, Net 166 477
Other Income, Net 762 2,343
------------- -------------
Loss Before Income Tax Benefit (5,036) (6,731)
Income Tax Benefit (2,173) (3,506)
------------- -------------
Net Loss $ (2,863) $ (3,225)
============= =============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY CONTRACTING, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 463
Receivables, net 13,832
Other materials and supplies, at average cost 331
Prepayments and other 564
------------
15,190
------------
Property, Plant and Equipment:
Competitive energy 6,310
Less: Accumulated depreciation 3,996
------------
2,314
------------
Deferred Debits and Other Assets:
Goodwill, net 17,220
------------
17,220
------------
Total Assets $ 34,724
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY CONTRACTING, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
LIABILITIES AND CAPITALIZATION
------------------------------
Current Liabilities:
Notes payable to affiliated companies $ 3,790
Accounts payable 3,823
Accounts payable to affiliated companies 4,439
Accrued taxes 553
Other 1,408
------------
14,013
------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 947
Other 2,984
------------
3,931
------------
Capitalization:
Common Stockholder's Equity:
Common stock, $1 par value - 100,000 shares
authorized and 100 shares outstanding -
Capital surplus, paid in 15,124
Retained earnings 1,656
------------
Common Stockholder's Equity 16,780
------------
Total Capitalization 16,780
------------
Total Liabilities and Capitalization $ 34,724
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY CONTRACTING, INC.
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ -------------
(Thousands of Dollars)
Operating Revenues $ 15,426 $ 57,681
------------ ------------
Operating Expenses:
Operation 14,150 54,238
Maintenance 116 460
Depreciation 272 1,121
Taxes other than income taxes 77 338
------------ ------------
Total operating expenses 14,615 56,157
------------ ------------
Operating Income 811 1,524
Interest Expense, Net 65 270
Other Loss, Net (11) (34)
------------ ------------
Income Before Income Tax Expense 735 1,220
Income Tax Expense 123 318
------------ ------------
Net Income $ 612 $ 902
============ ============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
REEDS FERRY SUPPLY CO., INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 5
Receivables, net 78
------------
83
------------
Deferred Debits and Other Assets:
Goodwill, net 247
------------
Total Assets $ 330
============
LIABILITIES AND CAPITALIZATION
------------------------------------
Current Liabilities:
Accounts payable $ 77
Accounts payable to affiliated companies 295
------------
372
Capitalization: ------------
Common Stockholder's Equity:
Common stock, $1 par value - 200 shares
authorized and 100 shares outstanding 4
Capital surplus, paid in 3
Accumulated deficit (49)
------------
Common Stockholder's Equity (42)
------------
Total Capitalization (42)
------------
Total Liabilities and Capitalization $ 330
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
REEDS FERRY SUPPLY CO., INC.
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ -------------
(Thousands of Dollars)
Operating Revenues $ 184 $ 836
Operating Expenses 184 836
------------ ------------
Net Income $ - $ -
============ ============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
HEC/TOBYHANNA ENERGY PROJECT, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 3,557
Receivables, net 897
-----------
4,454
-----------
Property, Plant and Equipment:
Other, net 608
-----------
Deferred Debits and Other Assets:
Contracts receivable 28,223
-----------
Total Assets $ 33,285
===========
LIABILITIES AND CAPITALIZATION
------------------------------
Current Liabilities:
Long-term debt - current portion $ 1,042
Accounts payable to affiliated companies 6,345
Accrued taxes 141
Accrued interest 719
Other 382
-----------
Total current liabilities 8,629
-----------
Capitalization:
Long-Term Debt 23,949
-----------
Common Stockholder's Equity:
Common stock, $1 par value - 100 shares
authorized and outstanding -
Retained earnings 707
-----------
Common Stockholder's Equity 707
-----------
Total Capitalization 24,656
-----------
Total Liabilities and Capitalization $ 33,285
===========
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
HEC/TOBYHANNA ENERGY PROJECT, INC.
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ --------------
(Thousands of Dollars)
Interest Expense, Net $ 485 $ 1,970
Other Income, Net 792 2,652
------------ ------------
Income Before Income Tax Expense 307 682
Income Tax Expense 103 201
------------ ------------
Net Income $ 204 $ 481
============ ============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
YANKEE ENERGY SERVICES COMPANY
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Accounts receivables from affiliated companies $ 454
Taxes receivable 188
------------
642
------------
Deferred Debits and Other Assets:
Accumulated deferred income taxes 436
Investments and other 5,150
------------
5,586
------------
Total Assets $ 6,228
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
YANKEE ENERGY SERVICES COMPANY
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
LIABILITIES AND CAPITALIZATION
------------------------------
Current Liabilities:
Notes payable to affiliated companies $ 769
Accounts payable 2
Accounts payable to affiliated companies 486
Other 7
-----------
1,264
-----------
Deferred Credits and Other Liabilities 5
-----------
Capitalization:
Common Stockholder's Equity:
Common stock, $0 par value - 10,000 shares
authorized and 200 shares outstanding 1
Capital surplus, paid in 7,881
Accumulated deficit (2,923)
-----------
Common Stockholder's Equity 4,959
-----------
Total Capitalization 4,959
-----------
Total Liabilities and Capitalization $ 6,228
===========
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
YANKEE ENERGY SERVICES COMPANY
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ -------------
(Thousands of Dollars)
Operating Revenues $ 16 $ 567
Operating Expenses:
Operation -
Other 13 786
Amortization 405 405
----------- -----------
Total operating expenses 418 1,191
----------- -----------
Operating Loss (402) (624)
Interest Expense, Net 5 65
----------- -----------
Loss Before Income Tax Expense (407) (689)
Income Tax Expense 695 583
----------- -----------
Net Loss $ (1,102) $ (1,272)
=========== ===========
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
E.S. BOULOS COMPANY
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 1,356
Receivables, net 10,617
Accounts receivable from affiliated companies 326
Unbilled revenues 2,800
Materials and supplies 223
------------
15,322
------------
Property, Plant and Equipment:
Competitive energy 712
Less: Accumulated depreciation 205
------------
507
------------
Deferred Debits and Other Assets:
Accumulated deferred income taxes 6
Goodwill 6,963
Other 29
------------
6,998
------------
Total Assets $ 22,827
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
E.S. BOULOS COMPANY
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
LIABILITIES AND CAPITALIZATION
------------------------------
Current Liabilities:
Advance from parent, non-interest bearing $ 2,948
Accounts payable 3,324
Accounts payable to affiliated companies 967
Accrued taxes 60
Other 688
------------
7,987
------------
Deferred Credits and Other Liabilities 1,180
------------
Capitalization:
Common Stockholder's Equity:
Common stock, $1 par value - 20,000 shares
authorized and 100 shares outstanding -
Capital surplus, paid in 7,539
Retained earnings 6,121
------------
Common Stockholder's Equity 13,660
------------
Total Capitalization 13,660
------------
Total Liabilities and Capitalization $ 22,827
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
E.S. BOULOS COMPANY
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ --------------
(Thousands of Dollars)
Operating Revenues $ 14,080 $ 62,056
------------ ------------
Operating Expenses:
Operating 405 1,496
Maintenance 12,380 56,497
Depreciation 75 134
Taxes other than income taxes 29 29
------------ ------------
Total operating expenses 12,889 58,156
------------ ------------
Operating Income 1,191 3,900
Other Income, Net 2 210
------------ ------------
Income Before Income Tax Expense 1,193 4,110
Income Tax Expense 455 1,395
------------ ------------
Net Income $ 738 $ 2,715
============ ============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
NGS MECHANICAL, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 10
-----------
Total Assets $ 10
===========
LIABILITIES AND CAPITALIZATION
------------------------------
Current Liabilities:
Accounts payable to affiliated companies $ 2
-----------
Capitalization:
Common Stockholder's Equity:
Common stock, $0 par value - 20,000 shares
authorized and 100 shares outstanding -
Capital surplus, paid in 10
Accumulated deficit (2)
-----------
Common Stockholder's Equity 8
-----------
Total Capitalization 8
-----------
Total Liabilities and Capitalization $ 10
===========
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
NGS MECHANICAL, INC.
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ -------------
(Thousands of Dollars)
Operating Revenues $ - $ -
Operating Expenses - 1
------------ ------------
Net Loss $ - $ (1)
============ ============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY NEW YORK, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 12,077
Receivables, net 38,286
Accounts receivable from affiliated companies 1,491
Special deposits 2,384
Derivative assets 28,816
Prepayments and other 18,240
------------
101,294
------------
Property Plant and Equipment:
Competitive energy 440
Less: Accumulated depreciation 251
------------
189
------------
Deferred Debits and Other Assets 4,763
------------
Total Assets $ 106,246
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY NEW YORK, INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
LIABILITIES AND CAPITALIZATION
-------------------------------
Current Liabilities:
Accounts payable $ 23,623
Accounts payable to affiliated companies 5,947
Accrued taxes 2,407
Derivative liabilities 4,794
Other 5,884
------------
42,655
------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 8,302
Deferred pension costs 374
Other 17
------------
8,693
------------
Capitalization:
Long-Term Debt 20,699
------------
Common Stockholder's Equity:
Common stock, $1 par value - authorized
and outstanding 10,000 shares 10
Capital surplus, paid in 9,976
Retained earnings 19,903
Accumulated comprehensive income 4,310
------------
Common Stockholder's Equity 34,199
------------
Total Capitalization 54,898
------------
Total Liabilities and Capitalization $ 106,246
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
SELECT ENERGY NEW YORK, INC.
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ -------------
(Thousands of Dollars)
Operating Revenues $ 70,438 $ 272,205
------------ ------------
Operating Expenses:
Purchased power, net interchange
power and capacity 58,117 235,150
Other 2,054 8,972
Taxes other than income taxes (668) (2,003)
------------ ------------
Total operating expenses 59,503 242,119
------------ ------------
Operating Income 10,935 30,086
Interest Expense, Net 190 770
Other Income, Net 80 277
------------ ------------
Income Before Income Tax Expense 10,825 29,593
Income Tax Expense 4,646 12,385
------------ ------------
Net Income $ 6,179 $ 17,208
============ ============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
HEC/CJTS ENERGY CENTER LLC
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 1
-------------
1
-------------
Total Assets $ 1
=============
LIABILITIES AND CAPITALIZATION
------------------------------------
Capitalization:
Common Stockholder's Equity:
Capital surplus, paid in $ 12
Accumulated deficit (11)
-------------
Common Stockholder's Equity 1
-------------
Total Capitalization 1
-------------
Total Liabilities and Capitalization $ 1
=============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
HEC/CJTS ENERGY CENTER LLC
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ -------------
(Thousands of Dollars)
Operating Revenues $ - $ -
------------- -------------
Operating Expenses - 2
------------- -------------
Net Loss $ - $ (2)
============= =============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
WOODS ELECTRICAL CO., INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
ASSETS
------
Current Assets:
Cash $ 890
Receivables, net 1,252
Taxes receivable 63
Unbilled revenue 197
Materials and supplies 94
Prepayments and other 85
------------
2,581
------------
Property Plant and Equipment:
Competitive energy 290
Less: Accumulated depreciation 15
------------
275
------------
Deferred Debits and Other Assets:
Goodwill and other purchased intangible assets, net 7,670
------------
7,670
------------
Total Assets $ 10,526
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
WOODS ELECTRICAL CO., INC.
BALANCE SHEET
(Unaudited)
December 31,
2002
------------
(Thousands
of Dollars)
LIABILITIES AND CAPITALIZATION
------------------------------
Current Liabilities:
Advance from parent, non-interest bearing $ 250
Accounts payable 304
Accounts payable to affiliated companies 550
------------
1,104
------------
Deferred Credits and Other Liabilities 80
------------
Capitalization:
Long-Term Debt 4,450
------------
Common Stockholder's Equity:
Common stock, $1 par value - 20,000 shares
authorized and 100 shares outstanding -
Capital surplus, paid in 5,000
Accumulated deficit (108)
------------
Common Stockholder's Equity 4,892
------------
Total Capitalization 9,342
------------
Total Liabilities and Capitalization $ 10,526
============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
WOODS ELECTRICAL CO., INC.
INCOME STATEMENT
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2002
------------ -------------
(Thousands of Dollars)
Operating Revenues $ 1,370 $ 3,213
----------- ------------
Operating Expenses:
Other 463 824
Maintenance 1,029 2,482
Depreciation 15 14
Taxes other than income taxes - 14
----------- ------------
Total operating expenses 1,507 3,334
----------- ------------
Operating Loss (137) (121)
Interest Expense, Net 82 140
Other Income, Net 7 9
----------- ------------
Loss Before Income Tax Benefit (212) (252)
Income Tax Benefit (144) (144)
----------- ------------
Net Loss $ (68) $ (108)
=========== ============
Note: In the opinion of the Company, all adjustments necessary for a fair
presentation of financial position for the period shown have been made.
See accompanying notes to financial statements.
Northeast Utilities Parent
Select Energy, Inc.
Select Energy New York, Inc.
Northeast Generation Services Company
E.S. Boulos Company
NGS Mechanical, Inc.
Woods Electrical Co., Inc.
Select Energy Contracting, Inc.
Reeds Ferry Supply Co., Inc.
HEC/Tobyhanna Energy Project, Inc.
HEC/CJTS Energy Center LLC
Yankee Energy Services Company
Notes to Financial Statements (Unaudited)
1. About Northeast Utilities (NU)
Northeast Utilities Parent is the parent company of NU subsidiaries. NU's
regulated utilities furnish franchised retail electric service in
Connecticut, New Hampshire and western Massachusetts through three wholly
owned subsidiaries: The Connecticut Light and Power Company (CL&P), Public
Service Company of New Hampshire (PSNH) and Western Massachusetts Electric
Company. Another wholly owned subsidiary, North Atlantic Energy Corporation,
previously sold 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 was sold on November 1,
2002. Other subsidiaries include Holyoke Water Power Company, a company
engaged in the production of electric power, and Yankee Energy System, Inc.
(Yankee), the parent company of Yankee Gas Services Company, Connecticut's
largest natural gas distribution system.
Several wholly owned subsidiaries of NU provide support services for NU's
companies and, in some cases, for other New England utilities. Northeast
Utilities Service Company provides centralized accounting, administrative,
engineering, financial, information resources, legal, operational, planning,
purchasing, and other services to NU's companies. Until the sale of Seabrook
on November 1, 2002, North Atlantic Energy Service Corporation had
operational responsibility for Seabrook. Three other subsidiaries construct,
acquire or lease some of the property and facilities used by NU's companies.
NU Enterprises, Inc. is a wholly owned subsidiary of NU and acts as the
holding company for certain of NU's competitive energy subsidiaries. Select
Energy, Inc. (Select Energy), and its subsidiary Select Energy New York, Inc.
(SENY), Northeast Generation Services Company and its subsidiaries (NGS),
Select Energy Services, Inc., and its subsidiaries (SESI), Mode 1
Communications, Inc. and Woods Network Services, Inc., engage in a variety of
energy-related and telecommunications activities, as applicable, primarily in
the competitive energy retail and wholesale commodity, marketing and services
fields. Northeast Generation Company acquires and manages generation
facilities. E.S. Boulos Company (Boulos), NGS Mechanical, Inc. (NGS
Mechanical) and Woods Electrical Co., Inc. (Woods Electrical) are wholly
owned subsidiaries of NGS. Select Energy Contracting, Inc. (Select Energy
Contracting), Reeds Ferry Supply Co., Inc. (Reeds Ferry), HEC/Tobyhanna
Energy Project, Inc., (HEC/Tobyhanna), and HEC/CJTS Energy Center LLC
(HEC/CJTS) are wholly owned subsidiaries of SESI. Yankee has certain wholly
owned subsidiaries, including Yankee Energy Services Company (YESCO).
Select Energy, SENY, NGS, Boulos, NGS Mechanical, Woods Electrical, Select
Energy Contracting, Reeds Ferry, HEC/Tobyhanna, HEC/CJTS, and YESCO are
"energy-related companies" under rule 58. These footnotes are applicable to
the rule 58 companies with financial statements filed in this Form U-9C-3
under Item 6 Section A.
2. About Select Energy
Select Energy is an integrated energy business that buys, markets, sells, and
trades electricity, gas, oil and energy-related products and services to both
wholesale and retail customers in the Northeastern United States. Select
Energy procures and delivers energy and capacity required to serve its
electric, gas and oil customers. Select Energy, collectively with its
affiliated competitive energy businesses, provides a wide range of energy
products and energy services. Select Energy is a licensed retail electricity
supplier and is registered with local electric distribution companies and is
a registered gas marketer with local gas distribution companies in the states
of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island, and Virginia.
3. About SENY
SENY is a wholly owned subsidiary of Select Energy and engages in the
brokering, marketing, transportation, storage, and sale of energy commodities
in the state of New York.
4. About NGS
NGS provides management, operation and maintenance services to the electric
generation market, as well as to large industrial customers, in the
Northeastern United States. NGS also provides consulting services which
include engineering services, construction management, permitting, and
compliance management.
5. About Boulos
Boulos is an electrical contracting company which specializes in high voltage
electrical construction and maintenance in Connecticut, Maine, Massachusetts,
New Hampshire, Rhode Island, and Vermont. Boulos is wholly owned by NGS.
6. About NGS Mechanical
NGS Mechanical provides mechanical services in certain New England states and
New York. NGS Mechanical is wholly owned by NGS.
7. About Woods Electrical
Woods Electrical is a wholly owned subsidiary of NGS and is in the electrical
contracting business in the state of Connecticut. Woods Electrical is also
registered to do business in Maine, Massachusetts and New Hampshire. NGS
acquired Woods Electrical on July 1, 2002, and the results of Woods
Electrical's operations since July 1, 2002, are included in this report.
8. About Select Energy Contracting
Select Energy Contracting designs, manages, and directs the construction of,
and/or installation of mechanical, water and electrical systems, energy and
other resource consuming equipment.
9. About Reeds Ferry
Reeds Ferry is an equipment wholesaler which purchases equipment on behalf of
Select Energy Contracting.
10. About HEC/Tobyhanna
HEC/Tobyhanna is a special purpose entity established to manage the assets of
an Energy Savings Performance Contract at the Tobyhanna Army Depot.
11. About HEC/CJTS
HEC/CJTS is a special purpose entity formed to facilitate the financing of
SESI's construction of an energy center at the Connecticut Juvenile Training
School in Middletown, Connecticut. HEC/CJTS is wholly owned by SESI.
12. About YESCO
YESCO has disposed of most of its assets and is winding down its energy-
related services for its customers.
13. Public Utility Regulation
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 is subject to the provisions of the 1935 Act. Arrangements among
NU's 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. The operating subsidiaries are subject to further regulation
for rates, accounting and other matters by the FERC and/or applicable state
regulatory commissions.
14. Presentation
The preparation of financial statements 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.
15. New Accounting Standards - Energy Trading and Risk Management Activities
In June 2002, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on EITF Issue No. 02-3,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities," requiring companies engaged in energy trading activities to
classify revenues and expenses associated with energy trading contracts on a
net basis in revenues, rather than recording revenues for sales and expenses
for purchases. While this consensus was subsequently rescinded by the EITF
on October 25, 2002, Select Energy and SENY chose to adopt net reporting of
energy trading revenues and expenses for contracts that physically settle
effective July 1, 2002. Operating revenues and operating expenses for 2002
reflect net reporting but had no effect on net income.
On October 25, 2002, the EITF reached additional consensuses in EITF Issue
No. 02-3. These consensuses supercede the consensuses the EITF reached in
June 2002. The first consensus rescinds EITF Issue No. 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities for
Energy Trading Activities," under which Select Energy and SENY previously
accounted for energy trading activities. This consensus requires companies
engaged in energy trading activities to discontinue fair value accounting
effective January 1, 2003, for contracts that do not meet the definition of a
derivative in Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
effective January 1, 2003. Select Energy and SENY adopted this consensus
effective October 1, 2002. Management determined that there were no trading
contracts subject to fair value accounting that did not meet the definition
of a derivative in SFAS No. 133. Accordingly, there was no cumulative effect
of an accounting change.
The second consensus requires that companies engaged in energy trading
activities classify revenues and expenses associated with energy trading
contracts on a net basis in revenues effective January 1, 2003. Select
Energy and SENY adopted net reporting effective July 1, 2002, before this
consensus was reached by the EITF.
16. Derivative Instruments, Market Risk and Risk Management
A. Derivative Instruments
Effective January 1, 2001, Select Energy and SENY adopted SFAS No. 133, as
amended. Derivatives that are utilized for trading purposes are recorded at
fair value with changes in fair value included in earnings. Other contracts
that are derivatives but do not meet the definition of a cash flow hedge and
cannot be designated as being used for normal purchases or normal sales are
also recorded at fair value with changes in fair value included in earnings.
For those contracts that meet the definition of a derivative and meet the
cash flow hedge requirements, the changes in the fair value of the effective
portion of those contracts are generally recognized in accumulated other
comprehensive income until the underlying transactions occur. For contracts
that meet the definition of a derivative but do not meet the hedging
requirements, and for the ineffective portion of contracts that meet the cash
flow hedge requirements, the changes in fair value of those contracts are
recognized currently in earnings. Derivative contracts that are entered into
as a normal purchase or sale and will result in physical delivery, and are
documented as such, are recorded under accrual accounting.
There have been changes to interpretations of SFAS No. 133, and the FASB
continues to consider changes and amendments which could affect the way
Select Energy and SENY record and disclose derivative and hedging activities
in the future.
The tables below summarize Select Energy and SENY derivative assets and
liabilities at December 31, 2002. These amounts do not include premiums
paid, which are recorded as prepayments and amounted to $26.6 million at
December 31, 2002. These amounts also do not include premiums received,
which are recorded as liabilities and amounted to $29.5 million at
December 31, 2002. These amounts relate primarily to energy trading
activities.
-------------------------------------------------------------------------------
(Millions of Dollars) Assets Liabilities Total
-------------------------------------------------------------------------------
Select Energy:
Trading $ 85.6 $(59.2) $26.4
Nontrading 0.7 -- 0.7
Hedging 15.6 (2.0) 13.6
-------------------------------------------------------------------------------
Total $101.9 $(61.2) $40.7
===============================================================================
-------------------------------------------------------------------------------
(Millions of Dollars) Assets Liabilities Total
-------------------------------------------------------------------------------
SENY:
Trading $ 19.4 $ (4.8) $14.6
Nontrading 2.2 -- 2.2
Hedging 7.2 -- 7.2
-------------------------------------------------------------------------------
Total $ 28.8 $ (4.8) $24.0
===============================================================================
Trading: As a market participant in the Northeast United States, Select
Energy conducts energy trading activities in electricity, natural gas and
oil, and therefore, experiences net open positions. Select Energy manages
these open positions with strict policies that limit its exposure to market
risk and require daily reporting to management of potential financial
exposure. Derivatives used in trading activities are recorded at fair value
and included in the consolidated balance sheets as derivative assets or
liabilities. Changes in fair value are recognized in operating revenues in
the consolidated statements of income in the period of change. The net fair
value positions of the trading portfolio at December 31, 2002 were assets of
$26.4 million for Select Energy and $14.6 million for SENY. These amounts
include intercompany assets and liabilities of $2.1 million.
Select Energy's and SENY's trading portfolios include New York Mercantile
Exchange (NYMEX) futures and options, the fair value of which is based on
closing exchange prices; over-the-counter forwards and options, the fair
value of which is based on the mid-point of bid and ask quotes; and bilateral
contracts for the purchase or sale of electricity or natural gas, the fair
value of which is modeled using available information from external sources
based on recent transactions and validated with a gas forward curve and an
estimated heat rate conversion. These trading portfolios also include
transmission congestion contracts. The fair value of certain transmission
congestion contracts is based on market inputs. Market information for other
transmission congestion contracts is not available, and those contracts
cannot be reliably valued. Management believes the amounts paid for these
contracts are equal to their fair value and has established a valuation
reserve for changes in fair value in excess of cost.
Management conducted a thorough review of the contracts in the trading
portfolios in order to adopt EITF Issue No. 02-3 as of October 1, 2002.
Based on this review, the significant changes in the energy trading market,
and the change in the focus of the energy trading business, certain long-term
derivative energy contracts that were previously included in the trading
portfolio and valued at $33.9 million as of November 30, 2002 were determined
to be nontrading and subsequently designated as normal purchases and sales,
as defined by SFAS No. 133, as of that date. Management was able to make
this designation based on the high probability that these contracts will
result in physical delivery. The impact of the normal purchases and sales
designation is that these contracts were adjusted to fair value as of
November 30, 2002 and were not and will not be adjusted subsequently for
changes in fair value. The $33.9 million carrying value as of November 30,
2002 was reclassified from trading derivative assets to other long-term
assets and will be amortized on a straight-line basis to operating expenses
over the remaining terms of the contracts, which extend to 2011.
Nontrading: Nontrading derivative contracts are for delivery of energy
related to Select Energy's and SENY's retail and wholesale marketing
activities. These contracts are not entered into for trading purposes, but
are subject to fair value accounting because these contracts are derivatives
that cannot be designated as normal purchases or sales, as defined by SFAS
No. 133. These contracts cannot be designated as normal purchases or sales
either because they are included in the New York energy market that settles
financially or because the normal purchase and sale designation was not
elected by management. The fair value positions of these nontrading
derivatives at December 31, 2002 were assets of $0.7 million for Select
Energy and $2.2 million for SENY.
Hedging: Select Energy and SENY utilize derivative financial and commodity
instruments, including futures and forward contracts, to reduce market risk
associated with fluctuations in the price of electricity and natural gas
purchased to meet firm sales commitments to certain customers. Select Energy
and SENY also utilize derivatives, including price swap agreements, call and
put option contracts, and futures and forward contracts, to manage the market
risk associated with a portion of its anticipated retail supply requirements.
These derivatives have been designated as cash flow hedging instruments and
are used to reduce the market risk associated with fluctuations in the price
of electricity, natural gas, or oil. A derivative that hedges exposure to
the variable cash flows of a forecasted transaction (a cash flow hedge) is
initially recorded at fair value with changes in fair value recorded in other
comprehensive income. Hedges impact earnings when the forecasted transaction
being hedged occurs, when hedge ineffectiveness is measured and recorded,
when the forecasted transaction being hedged is no longer probable of
occurring, or when there is accumulated other comprehensive loss and the
hedge and the forecasted transaction being hedged are in a loss position on a
combined basis.
Select Energy and SENY maintain natural gas service agreements with certain
customers to supply gas at fixed prices for terms extending through 2004.
Select Energy and SENY have hedged its gas supply risk under these agreements
through NYMEX futures contracts. Under these contracts, which also extend
through 2004, the purchase price of a specified quantity of gas is
effectively fixed over the term of the gas service agreements. At
December 31, 2002 the NYMEX futures contracts had a notional value of $30.9
million and was recorded at fair value as a derivative asset of $12.2 million.
During 2002, Select Energy determined that cash flow hedges related to the
CL&P standard offer service contract were ineffective. These hedges were
natural gas derivatives that were used to hedge off-peak electricity
purchases for CL&P standard offer sales. As a result of this
ineffectiveness, Select Energy transferred $3.9 million related to these cash
flow hedges from accumulated other comprehensive income to operating
expenses. Also in 2002, Select Energy terminated these cash flow hedges and
realized pre-tax income of $5.6 million.
In the fourth quarter of 2002, SENY designated new hedges with a derivative
asset value of $5.6 million as hedging full requirements contracts in the New
York market.
B. Market Risk Information
Select Energy utilizes the sensitivity analysis methodology to disclose
quantitative information for its commodity price risks. Sensitivity analysis
provides a presentation of the potential loss of future earnings, fair values
or cash flows from market risk-sensitive instruments over a selected time
period due to one or more hypothetical changes in commodity prices, or other
similar price changes. Under sensitivity analysis, the fair value of the
portfolio is a function of the underlying commodity, contract prices and
market prices represented by each derivative commodity contract. For swaps,
forward contracts and options, fair value reflects management's best
estimates considering over-the-counter quotations, time value and volatility
factors of the underlying commitments. Exchange-traded futures and options
are recorded at fair value based on closing exchange prices.
Trading Portfolio: At December 31, 2002, Select Energy has calculated the
market price resulting from a 10 percent unfavorable change in forward market
prices. That 10 percent change would result in approximately a $2.6 million
decline in the fair value of the Select Energy trading portfolio. In the
normal course of business, Select Energy also faces risks that are either
nonfinancial or non-quantifiable. Such risks principally include credit
risk, which is not reflected in this sensitivity analysis.
Retail and Wholesale Marketing Portfolio: When conducting sensitivity
analyses of the change in the fair value of Select Energy's electricity,
natural gas and oil nontrading derivatives portfolio, which would result from
a hypothetical change in the future market price of electricity, natural gas
and oil, the fair values of the contracts are determined from models that
take into account estimated future market prices of electricity, natural gas
and oil, the volatility of the market prices in each period, as well as the
time value factors of the underlying commitments. In most instances, market
prices and volatility are determined from quoted prices on the futures
exchange.
Select Energy has determined a hypothetical change in the fair value for its
retail and wholesale marketing portfolio, which includes cash flow hedges and
electricity, natural gas and oil contracts, assuming a 10 percent unfavorable
change in forward market prices. At December 31, 2002, an unfavorable 10
percent change in market price would have resulted in a decline in fair value
of approximately $4.4 million.
The impact of a change in electricity, natural gas and oil prices on Select
Energy's retail and wholesale marketing portfolio at December 31, 2002, is
not necessarily representative of the results that will be realized when
these contracts are physically delivered.
C. Other Risk Management Activities
Credit Risk Management: Credit risk relates to the risk of loss that NU would
incur as a result of non-performance by counterparties pursuant to the terms
of their contractual obligations. Credit risks and market risks at the
competitive energy subsidiaries are monitored regularly by a Risk Oversight
Council operating outside of the business units that create or actively
manage these risk exposures to ensure compliance with NU's stated risk
management policies.
NU tracks and re-balances the risk in its portfolio in accordance with fair
value and other risk management methodologies that utilize forward price
curves in the energy markets to estimate the size and probability of future
potential exposure.
NYMEX traded futures and option contracts are guaranteed by the NYMEX and
have a lower credit risk. Select Energy has established written credit
policies with regard to its counterparties to minimize overall credit risk on
all types of transactions. These policies require an evaluation of potential
counterparties' financial conditions (including credit ratings), collateral
requirements under certain circumstances (including cash in advance, letters
of credit, and parent guarantees), and the use of standardized agreements,
which allow for the netting of positive and negative exposures associated
with a single counterparty. This evaluation results in establishing credit
limits prior to Select Energy entering into trading activities. The
appropriateness of these limits is subject to continuing review.
Concentrations among these counterparties may impact Select Energy's overall
exposure to credit risk, either positively or negatively, in that the
counterparties may be similarly affected by changes to economic, regulatory
or other conditions.
17. Special Deposits
Special deposits include cash collateral posted in connection with various
power purchase and sales agreements.
QUARTERLY REPORT OF NORTHEAST UTILITIES
SIGNATURE CLAUSE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935 and the rules and regulations of the Securities and Exchange Commission
issued thereunder, the undersigned company has duly caused this report to be
signed on its behalf by the undersigned officer thereunto duly authorized.
NORTHEAST UTILITIES
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(Registered Holding Company)
By: /s/ John P. Stack
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John P. Stack
(Signature of Signing Officer)
John P. Stack
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Vice President-Accounting and Controller
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Date: March 26, 2003
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