-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T1jiFI58FOmXpL0PPtsnoEtfh4DGq40sQWQN9OoHj80jV41RWxX1KYYAfFaaAaEN eXlOQZ9FFFm91323Bxrq8w== 0000072741-03-000088.txt : 20030509 0000072741-03-000088.hdr.sgml : 20030509 20030509123954 ACCESSION NUMBER: 0000072741-03-000088 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNECTICUT LIGHT & POWER CO CENTRAL INDEX KEY: 0000023426 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 060303850 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00404 FILM NUMBER: 03689616 BUSINESS ADDRESS: STREET 1: SELDEN STREET CITY: BERLIN STATE: CT ZIP: 06037-1616 BUSINESS PHONE: 8606655000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN MASSACHUSETTS ELECTRIC CO CENTRAL INDEX KEY: 0000106170 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041961130 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07624 FILM NUMBER: 03689618 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01089 BUSINESS PHONE: 4137855871 MAIL ADDRESS: STREET 1: 107 SELDON ST CITY: BERLIN STATE: CT ZIP: 06037-1616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE CO OF NEW HAMPSHIRE CENTRAL INDEX KEY: 0000315256 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 020181050 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06392 FILM NUMBER: 03689615 BUSINESS ADDRESS: STREET 1: 1000 ELM ST CITY: MANCHESTER STATE: NH ZIP: 03105 BUSINESS PHONE: 6036694000 MAIL ADDRESS: STREET 1: 1000 ELM STREET CITY: MANCHESTER STATE: NH ZIP: 03105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST UTILITIES SYSTEM CENTRAL INDEX KEY: 0000072741 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 042147929 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05324 FILM NUMBER: 03689617 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0010 BUSINESS PHONE: 4137855871 MAIL ADDRESS: STREET 1: 107 SELDEN ST CITY: BERLIN STATE: CT ZIP: 06037-1616 10-Q 1 march2003v5.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 1-5324 NORTHEAST UTILITIES 04-2147929 ------------------- (a Massachusetts voluntary association) 174 Brush Hill Avenue West Springfield, Massachusetts 01090-2010 Telephone: (413) 785-5871 0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850 --------------------------------------- (a Connecticut corporation) 107 Selden Street Berlin, Connecticut 06037-1616 Telephone: (860) 665-5000 1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050 --------------------------------------- (a New Hampshire corporation) Energy Park 780 North Commercial Street Manchester, New Hampshire 03101-1134 Telephone: (603) 669-4000 0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130 -------------------------------------- (a Massachusetts corporation) 174 Brush Hill Avenue West Springfield, Massachusetts 01090-2010 Telephone: (413) 785-5871 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act): Yes X No --- --- Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date: Company - Class of Stock Outstanding at April 30, 2003 - ------------------------ ----------------------------- Northeast Utilities Common shares, $5.00 par value 126,638,593 shares The Connecticut Light and Power Company Common stock, $10.00 par value 6,035,205 shares Public Service Company of New Hampshire Common stock, $1.00 par value 301 shares Western Massachusetts Electric Company Common stock, $25.00 par value 434,653 shares GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report: COMPANIES Citigroup.................. Citigroup, Inc. CL&P....................... The Connecticut Light and Power Company CRC........................ CL&P Receivables Corporation CVEC....................... Connecticut Valley Electric Company HWP........................ Holyoke Water Power Company NAEC....................... North Atlantic Energy Corporation NEON....................... NEON Communications, Inc. NGC........................ Northeast Generation Company NGS........................ Northeast Generation Services Company NRG........................ NRG Energy, Inc. NRG-PM..................... NRG Power Marketing, Inc. NU or the company.......... Northeast Utilities NU Enterprises............. NU's competitive subsidiaries comprised of Select Energy, NGC, SESI, NGS, HWP, and Woods Network. For further information, see Note 7, "Segment Information," to the consolidated financial statements. PSNH....................... Public Service Company of New Hampshire Select Energy.............. Select Energy, Inc. (including its wholly owned subsidiary SENY) SENY....................... Select Energy New York, Inc. SESI....................... Select Energy Services, Inc. Utility Group.............. NU's regulated utilities comprised of CL&P, PSNH, WMECO, NAEC and Yankee Gas. For further information, see Note 7, "Segment Information," to the consolidated financial statements. WMECO...................... Western Massachusetts Electric Company Woods Network.............. Woods Network Services, Inc. Yankee..................... Yankee Energy System, Inc. Yankee Gas................. Yankee Gas Services Company REGULATORS DPUC....................... Connecticut Department of Public Utility Control DTE........................ Massachusetts Department of Telecommunications and Energy FERC....................... Federal Energy Regulatory Commission NHPUC...................... New Hampshire Public Utilities Commission SEC........................ Securities and Exchange Commission OTHER ABO........................ Accumulated Benefit Obligation ARO........................ Asset Retirement Obligation CSC........................ Connecticut Siting Council CTA........................ Competitive Transition Assessment EAC........................ Energy Adjustment Clause EITF....................... Emerging Issues Task Force EPS........................ Earnings per Share FASB....................... Financial Accounting Standards Board FIN........................ FASB Interpretation GSC........................ Generation Services Charge IPPs....................... Independent Power Producers ISO-NE..................... New England Independent System Operator kWh........................ Kilowatt-hour LMP........................ Locational Marginal Pricing MW......................... Megawatts NU 2002 Form 10-K.......... The Northeast Utilities and Subsidiaries combined 2002 Form 10-K as filed with the SEC NYMEX...................... New York Mercantile Exchange O&M........................ Operation and Maintenance Restructuring Settlement............... Agreement to Settle PSNH Restructuring RMR........................ Reliability Must Run SMD........................ Standard Market Design TS......................... Transition Service Northeast Utilities and Subsidiaries The Connecticut Light and Power Company and Subsidiaries Public Service Company of New Hampshire and Subsidiaries Western Massachusetts Electric Company and Subsidiary TABLE OF CONTENTS ----------------- Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements (Unaudited) and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the following companies: Northeast Utilities and Subsidiaries Consolidated Balance Sheets - March 31, 2003 and December 31, 2002................... 2 Consolidated Statements of Income - Three Months Ended March 31, 2003 and 2002............. 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2003 and 2002............. 5 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 6 Independent Accountants' Report............................. 25 Notes to Consolidated Financial Statements (unaudited - all companies).................................. 26 The Connecticut Light and Power Company and Subsidiaries Consolidated Balance Sheets - March 31, 2003 and December 31, 2002................... 46 Consolidated Statements of Income - Three Months Ended March 31, 2003 and 2002............. 48 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2003 and 2002............. 49 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 50 Public Service Company of New Hampshire and Subsidiaries Consolidated Balance Sheets - March 31, 2003 and December 31, 2002................... 54 Consolidated Statements of Income - Three Months Ended March 31, 2003 and 2002............. 56 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2003 and 2002............. 57 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 58 Western Massachusetts Electric Company and Subsidiary Consolidated Balance Sheets - March 31, 2003 and December 31, 2002................... 62 Consolidated Statements of Income - Three Months Ended March 31, 2003 and 2002............. 64 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2003 and 2002............. 65 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 66 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 68 Item 4. Controls and Procedures................................ 68 Part II. Other Information Item 1. Legal Proceedings...................................... 69 Item 6. Exhibits and Reports on Form 8-K....................... 69 Signatures and Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002..................................... 71 NORTHEAST UTILITIES AND SUBSIDIARIES NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 --------------- ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash and cash equivalents................................... $ 98,959 $ 54,678 Investments in securitizable assets......................... 155,759 178,908 Receivables, net............................................ 702,669 767,089 Unbilled revenues........................................... 116,092 126,236 Fuel, materials and supplies, at average cost............... 111,230 119,853 Special deposits............................................ 84,038 43,261 Derivative assets........................................... 198,448 130,929 Prepayments and other....................................... 95,077 110,261 ----------- ----------- 1,562,272 1,531,215 ----------- ----------- Property, Plant and Equipment: Electric utility............................................ 5,211,492 5,141,951 Gas utility................................................. 690,988 679,055 Competitive energy.......................................... 864,661 866,294 Other....................................................... 205,878 205,115 ----------- ----------- 6,973,019 6,892,415 Less: Accumulated depreciation............................ 2,516,514 2,484,613 ----------- ----------- 4,456,505 4,407,802 Construction work in progress............................... 322,429 320,567 ----------- ----------- 4,778,934 4,728,369 ----------- ----------- Deferred Debits and Other Assets: Regulatory assets .......................................... 2,833,150 2,909,923 Goodwill and other purchased intangible assets, net......... 344,965 345,867 Prepaid pension............................................. 336,540 328,890 Other ...................................................... 417,342 433,444 ----------- ----------- 3,931,997 4,018,124 ----------- ----------- Total Assets................................................. $10,273,203 $10,277,708 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 --------------- --------------- (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Notes payable to banks...................................... $ 95,000 $ 56,000 Long-term debt - current portion............................ 55,749 56,906 Accounts payable............................................ 687,735 776,219 Accrued taxes............................................... 84,759 141,667 Accrued interest............................................ 56,889 40,597 Derivative liabilities...................................... 125,620 63,900 Other....................................................... 203,909 208,680 ----------- ----------- 1,309,661 1,343,969 ----------- ----------- Rate Reduction Bonds.......................................... 1,856,411 1,899,312 ----------- ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes........................... 1,414,993 1,436,507 Accumulated deferred investment tax credits................. 105,517 106,471 Deferred contractual obligations............................ 346,830 354,469 Other....................................................... 569,595 523,115 ----------- ----------- 2,436,935 2,420,562 ----------- ----------- Capitalization: Long-Term Debt.............................................. 2,324,432 2,287,144 ----------- ----------- Preferred Stock - Nonredeemable............................. 116,200 116,200 ----------- ----------- Common Shareholders' Equity: Common shares, $5 par value - authorized 225,000,000 shares; 149,884,644 shares issued and 126,591,916 shares outstanding in 2003 and 149,375,847 shares issued and 127,562,031 shares outstanding in 2002...................................... 749,423 746,879 Capital surplus, paid in.................................. 1,105,386 1,108,338 Deferred contribution plan - employee stock ownership plan.......................................... (83,976) (87,746) Retained earnings......................................... 808,352 765,611 Accumulated other comprehensive income.................... 11,077 14,927 Treasury stock, 19,664,209 shares in 2003 and 18,022,415 shares in 2002........................... (360,698) (337,488) ----------- ----------- Common Shareholders' Equity................................. 2,229,564 2,210,521 ----------- ----------- Total Capitalization.......................................... 4,670,196 4,613,865 ----------- ----------- Commitments and Contingencies (Note 4) Total Liabilities and Capitalization......................... $10,273,203 $10,277,708 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, ---------------------------------- 2003 2002 --------------- --------------- (Thousands of Dollars, except share information) Operating Revenues........................................ $ 1,688,437 $ 1,284,461 ------------ ------------ Operating Expenses: Operation - Fuel, purchased and net interchange power............ 1,069,295 726,615 Other................................................ 189,272 198,031 Maintenance............................................. 45,892 52,312 Depreciation............................................ 49,473 52,215 Amortization............................................ 57,299 20,244 Amortization of rate reduction bonds.................... 39,200 46,160 Taxes other than income taxes........................... 73,974 74,598 ------------ ------------ Total operating expenses............................ 1,524,405 1,170,175 ------------ ------------ Operating Income.......................................... 164,032 114,286 Interest Expense: Interest on long-term debt.............................. 32,940 32,972 Interest on rate reduction bonds........................ 27,861 29,562 Other interest.......................................... 2,744 4,353 ------------ ------------ Interest expense, net.............................. 63,545 66,887 ------------ ------------ Other Income/(Loss), Net.................................. 576 (13,997) ------------ ------------ Income Before Income Tax Expense.......................... 101,063 33,402 Income Tax Expense........................................ 39,469 13,370 ------------ ------------ Income Before Preferred Dividends of Subsidiaries......... 61,594 20,032 Preferred Dividends of Subsidiaries....................... 1,390 1,390 ------------ ------------ Net Income................................................ $ 60,204 $ 18,642 ============ ============ Basic and Fully Diluted Earnings Per Common Share......... $ 0.47 $ 0.14 ============ ============ Basic Common Shares Outstanding (average)................. 127,013,678 129,504,005 ============ ============ Fully Diluted Common Shares Outstanding (average)......... 127,111,272 129,754,946 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------ 2003 2002 ------------- ------------- (Thousands of Dollars) Operating Activities: Income before preferred dividends of subsidiaries........... $ 61,594 $ 20,032 Adjustments to reconcile to net cash flows provided by operating activities: Depreciation.............................................. 49,473 52,215 Deferred income taxes and investment tax credits, net..... (22,468) (22,803) Amortization.............................................. 96,499 66,404 Net amortization of recoverable energy costs.............. 6,269 22,053 Prepaid pension........................................... (7,650) (17,525) Net other sources of cash................................. 18,926 66,309 Changes in working capital: Receivables and unbilled revenues, net.................... 74,564 102,235 Fuel, materials and supplies.............................. 8,622 (368) Accounts payable.......................................... (88,484) (120,122) Accrued taxes............................................. (56,908) 32,232 Investments in securitizable assets....................... 23,149 (3,967) Other working capital (excludes cash)..................... (18,651) 24,288 ---------- ---------- Net cash flows provided by operating activities............... 144,935 220,983 ---------- ---------- Investing Activities: Investments in plant: Electric, gas and other utility plant..................... (92,705) (90,630) Competitive energy assets................................. (5,340) (6,571) Nuclear fuel.............................................. - (164) ---------- ---------- Cash flows used for investments in plant.................... (98,045) (97,365) Other investment activities, net............................ 6,571 (44,154) ---------- ---------- Net cash flows used in investing activities................... (91,474) (141,519) ---------- ---------- Financing Activities: Issuance of common shares................................... 6,979 1,130 Repurchase of common shares................................. (23,209) (18,250) Issuance of long-term debt.................................. 44,338 - Issuance of rate reduction bonds............................ - 50,000 Retirement of rate reduction bonds.......................... (42,901) (16,544) Net increase/(decrease) in short-term debt.................. 39,000 (60,500) Reacquisitions and retirements of long-term debt............ (14,324) (7,410) Cash dividends on preferred stock........................... (1,390) (1,390) Cash dividends on common shares............................. (17,469) (16,171) Other financing activities, net............................. (204) (177) ---------- ---------- Net cash flows used in financing activities................... (9,180) (69,312) ---------- ---------- Net increase in cash and cash equivalents..................... 44,281 10,152 Cash and cash equivalents - beginning of period............... 54,678 96,658 ---------- ---------- Cash and cash equivalents - end of period..................... $ 98,959 $ 106,810 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the consolidated financial statements and footnotes in this Form 10-Q, the NU 2002 Form 10-K, and the current report on Form 8-K dated January 28, 2003. FINANCIAL CONDITION Overview - -------- Consolidated: Northeast Utilities (NU or the company) earned $60.2 million, or $0.47 per share, in the first quarter of 2003, compared with earnings of $18.6 million, or $0.14 per share, in the first quarter of 2002. Results for the first quarter of 2002 included after-tax write-downs totaling $10 million, or $0.08 per share, related primarily to NU's investments in NEON Communications, Inc. (NEON) and Acumentrics Corporation (Acumentrics). First quarter 2003 results did not include any similar write-downs. Excluding those write-downs, NU earned $28.6 million in the first quarter of 2002. All per share amounts are reported on a fully diluted basis. Higher 2003 first quarter earnings for NU were a result of improved results at NU Enterprises. NU's earnings per share also benefited from its ongoing share repurchase program. NU repurchased approximately 1.6 million shares at an average price of $14.14 in the first quarter of 2003 and had approximately 126.6 million shares outstanding at March 31, 2003. NU can repurchase an additional 5.5 million shares through June 30, 2003, under a resolution adopted by the NU Board of Trustees. NU's revenues in the first quarter of 2003 increased to $1.7 billion from revenues of $1.3 billion in the same period of 2002 also contributing to the improvement in earnings. The increase in revenues is due to increases in electric and firm natural gas sales in 2003 as compared to 2002 as well as higher NU Enterprises' revenues. Utility Group: Overall, NU's Utility Group's performance in the first quarter of 2003 was comparable to the same period of 2002. The Connecticut Light and Power Company (CL&P) and Yankee Energy System, Inc. (Yankee) improved results from 2002 while Public Service Company of New Hampshire (PSNH) and Western Massachusetts Electric Company (WMECO) earned less in the first quarter of 2003. Much colder weather in 2003 benefited the Utility Group and resulted in an 8.9 percent increase in regulated retail electric sales and an 18.3 percent increase in total regulated firm natural gas sales in the first three months of 2003, compared with the same period of 2002. The pre-tax earnings benefit related to these higher sales of approximately $21.5 million was offset by a reduction in pre-tax pension income and the absence of earnings related to the company's investment in the Seabrook nuclear power plant in the first quarter of 2003 compared with the same period of 2002. CL&P benefited from the colder weather resulting in a 9.1 percent increase in retail sales in the first quarter of 2003, compared with the same period of 2002. Also during the first quarter of 2003, CL&P recorded the final impacts of the Connecticut Department of Public Utility Control's (DPUC) final decision on the use of the proceeds from the Millstone sale which was issued on February 27, 2003. This decision resulted in an increase in CL&P's first quarter 2003 net income of $2.6 million. CL&P's earnings before the payment of preferred dividends totaled $26.7 million in the first quarter of 2003, compared with $21.7 million in the same period of 2002. Due to the colder weather which resulted in an 18.3 percent increase in firm natural gas sales in the first quarter of 2003 from the same period of 2002, Yankee earned $15.1 million in the first quarter of 2003, compared with $12.6 million in the same period of 2002. Other portions of the Utility Group recorded somewhat lower earnings, despite significant sales increases. PSNH earned $10.8 million in the first quarter of 2003, compared with $11.7 million in the same period of 2002, despite an 8.1 percent increase in retail sales. PSNH's 2003 earnings were negatively affected by a lower level of regulatory assets on which it earned a return, primarily due to the sale of the Seabrook nuclear units which was consummated on November 1, 2002. Net regulatory assets were reduced in November 2002 as a result of the sale of North Atlantic Energy Corporation's (NAEC) 35.98 percent ownership interest in Seabrook. The reduction in net regulatory assets will continue to negatively affect PSNH's 2003 to 2002 earnings comparisons. WMECO earned $6.1 million in the first quarter of 2003, compared with $6.9 million in the same period of 2002, despite a 9.2 percent increase in retail sales. The lower earnings in 2003 were due to lower pension income, which more than offset the impact of increased sales. NU Enterprises: NU Enterprises, which includes Select Energy, Inc. (Select Energy), NU's competitive wholesale and retail energy marketing subsidiary, earned $5.2 million in the first quarter of 2003, compared with a loss of $20.1 million in the first quarter of 2002. Select Energy's wholesale business includes 1,438 megawatts (MW) of generation and an energy trading function. The trading function has been significantly reduced in size over the past year. The wholesale business earned $6.8 million in the first quarter of 2003, compared with a loss of approximately $5.9 million in the same period of 2002. The first quarter 2002 results included approximately $10 million of after-tax energy trading losses. The 2003 results improved due to better management of the wholesale marketing portfolio, including better and more complete sourcing and the absence of net trading losses in the first quarter of 2003. Other areas of NU Enterprises, which include selling of electricity and natural gas to retail end-users and energy services businesses, lost approximately $1.6 million in the first quarter of 2003, compared with losses of $14.2 million in the first quarter of 2002. The 2003 improved retail results are primarily due to improved management of gas retail contracts along with improved margins on retail electric sales. Future Outlook - -------------- Consolidated: NU continues to project earnings of between $1.10 per share and $1.30 per share in 2003. Despite a strong first quarter of 2003, management believes that a combination of more seasonable weather, lower pension income, and the absence of Seabrook-related earnings will result in lower quarterly results in the second, third and fourth quarters of 2003 than those reported by NU in the first quarter of 2003. Utility Group: The earnings range of between $1.10 per share and $1.30 per share includes earnings of between $1.05 per share and $1.15 per share at the Utility Group. NU Enterprises: NU continues to project earnings of between $0.15 per share and $0.25 per share at NU Enterprises. NU also continues to project parent company debt and other expenses of approximately $0.10 per share. Liquidity - --------- Consolidated: NU's liquidity continues to be strong. At March 31, 2003, NU had $99 million of cash and cash equivalents on hand, a $44.3 million increase over March 31, 2002. At March 31, 2003, NU parent had $209.9 million invested in the NU system Money Pool, all of which was loaned to both the Utility Group and NU Enterprises. NU's net cash flows from operating activities decreased to $144.9 million in the first quarter of 2003 from $221 million in the first quarter of 2002. The primary reason for the decrease is the payment of $125.2 million of taxes primarily on the gain on the sale of Seabrook, offset by a $41.6 million increase in income before preferred dividends of subsidiaries. NU's capital expenditures totaled $98 million in the first quarter of 2003 compared to $97.4 million in the first quarter of 2002. NU also paid $14.3 million of debt maturities and $42.9 million of rate reduction bond maturities. In the first quarter of 2003, NU's long-term debt was impacted by two events. Select Energy Services, Inc. (SESI) issued $44.3 million of long-term debt that was used to refinance $6.5 million of short-term debt, with the remainder being used to finance ongoing projects. Also, NU executed an interest rate swap related to its $263 million fixed-rate senior notes, which resulted in a fair value adjustment to long-term debt of $5.1 million. The level of common dividends totaled $17.5 million in the first quarter of 2003, compared with $16.2 million in the first quarter of 2002. The increase resulted from NU paying a $0.1375 per share quarterly common dividend in the first quarter of 2003 and a $0.125 per share quarterly dividend in the first quarter of 2002. Management expects to continue to increase the dividend level periodically, subject to NU's ability to meet earnings targets and the judgment of its Board of Trustees at the time the dividends are declared. In 2001 and 2002, NU's Board of Trustees approved dividend increases at the time of the company's annual meeting, effective in the third quarter of those years. NU's next annual meeting will be held May 13, 2003, and management expects the Board of Trustees to consider a quarterly dividend increase at that time, effective in the third quarter of 2003. On April 8, 2003, the NU Board of Trustees approved a dividend of $0.1375 per share, payable June 30, 2003, to shareholders of record at June 1, 2003. Utility Group: At March 31, 2003, NU's Utility Group had $35 million borrowed on their $300 million revolving credit agreement. This credit line matures in November 2003. In addition to its revolving credit arrangement, CL&P can access up to $100 million by selling certain of its accounts receivable. At March 31, 2003, CL&P had $60 million of accounts receivable sold under this arrangement. At December 31, 2002, $40 million of accounts receivable were sold. These amounts are not reflected as obligations on the accompanying consolidated balance sheets. CL&P has withdrawn its application before the DPUC to fund approximately $200 million of spent nuclear fuel obligations. WMECO has an application pending with the Massachusetts Department of Telecommunications and Energy (DTE) to issue $100 million of unsecured long-term debt to fund its spent nuclear fuel obligations and to reduce short-term borrowings. NU Enterprises: NU parent and NU Enterprises had $60 million of borrowings and $28.2 million of letters of credit drawn on their $350 million revolving credit agreement. This credit line matures in November 2003. NU expects to issue $100 million to $150 million of unsecured, five-year fixed-rate senior notes in the second quarter of 2003 to refinance short-term debt. Implementation of Standard Market Design - ---------------------------------------- On March 1, 2003, the New England Independent System Operator (ISO-NE) implemented a new standard market design (SMD). As part of SMD, locational marginal pricing (LMP) is utilized to assign value and causation to transmission congestion and line losses. Line losses represent losses of electricity as it is sent over transmission lines. The costs associated with transmission congestion and line losses are now assigned to the load zone in which they occur. Prior to March 1, 2003, those costs were spread across virtually all New England electric customers. As part of the implementation of SMD, ISO-NE established eight separate pricing zones in New England: three in Massachusetts and one in each of the other New England states. The three components of the LMP for each zone are an energy cost, congestion costs and line loss costs. LMP is expected to increase costs in zones that have inadequate or less cost-efficient generation and/or transmission constraints, such as Connecticut, and decrease costs in zones that have significant excess generation, such as Maine. The implementation of SMD may impact pricing under wholesale energy contracts depending on the energy delivery points chosen under those contracts. Utility Group: Connecticut has been designated a single load zone by ISO-NE. Due to high loads, transmission constraints and inadequate generation, Connecticut could experience significant additional congestion costs under SMD. ISO-NE estimates that the costs of transmission congestion for 2003 in New England under SMD will range between $50 million and $300 million. ISO- NE estimates that the majority of this congestion and its costs will be in Connecticut, where approximately 80 percent is expected to be paid by CL&P beginning on March 1, 2003. In addition to the congestion cost component of LMP, the determination of the energy delivery points associated with the standard offer service contracts will also produce significant line loss charges for CL&P. For March 2003, incremental LMP costs totaled $15.5 million. The majority of these incremental costs were associated with line losses, and management expects comparable monthly line loss charges for the remainder of 2003. CL&P's standard offer service contracts were executed in the fall of 1999. The delivery points in the contracts are at the suppliers' choice at any point on the New England power pool. Prior to March 1, 2003, delivery by the suppliers anywhere on the New England power pool resulted in the suppliers being charged and paying their respective share of socialized congestion costs. Subsequent to March 1, 2003, the delivery points chosen by the suppliers have been zones with no or negative congestion. Management believes that under the terms of its standard offer service contracts with its standard offer suppliers the incremental costs associated with losses and congestion between the delivery points chosen by the suppliers and CL&P's service territory in Connecticut are the responsibility of CL&P's customers. The $15.5 million of incremental costs incurred in March 2003 were recorded as recoverable energy costs at March 31, 2003, which are included in regulatory assets, for future recovery from customers. Management believes that these congestion and line loss charges are unavoidable, are part of the prudent cost of providing regulated electric service in Connecticut and that these costs should be paid for by customers. Accordingly, management believes that these costs should be recovered from its customers and will not impact 2003 earnings. On April 1, 2003, an informational hearing on SMD was held before the DPUC. On April 22, 2003, CL&P filed an application with the DPUC to recover their 2003 incremental LMP costs starting in May 2003. On May 1, 2003, the DPUC issued a final decision in response to CL&P's April 22, 2003 filing. In its decision, the DPUC directed CL&P to pursue legal remedies against its standard offer suppliers in an effort to assign liability for incremental LMP costs to the suppliers. The DPUC indicated that it will support CL&P's efforts and that CL&P's failure to aggressively pursue legal remedies may result in ultimate disallowance of recovery of LMP-related costs. Recovery of incremental LMP costs will be allowed through the Energy Adjustment Clause (EAC) but will be subject to refund and posting of a surety bond. Recovery is approved for sixty days, before the end of which period CL&P will be required to report the status of the steps it has taken in its legal actions against its standard offer suppliers. CL&P began recovery of the incremental March 2003 LMP costs of $15.5 million in its May 1, 2003 bills to customers. The incremental April 2003 LMP costs of $15.6 million will be collected in June 2003 bills. On May 5, 2003, CL&P filed a response to the decision with the DPUC. CL&P intends to request a declaratory judgment from the Federal Energy Regulatory Commission (FERC) to determine whether CL&P's standard offer service suppliers are responsible for incremental LMP costs. Additionally, CL&P intends to withhold payment of incremental LMP costs to its standard offer service suppliers pending resolution of this matter. Another factor affecting the level of CL&P costs is the designation of certain generating units by ISO-NE as units needed for system reliability. Some companies owning such units have applied to the FERC for "reliability must run" (RMR) treatment. RMR treatment allows these units to receive cost of service-based payments that recognize their reliability value. Prior to March 1, 2003, all RMR costs were spread across New England with all utilities being billed by ISO-NE based upon their share of New England's load, and NU's Utility Group was responsible for approximately 25 percent of these costs. Effective with the March 1, 2003 implementation of SMD, RMR costs will be allocated to the load zone in which the RMR unit is located. At present, the only load zone that will experience an RMR cost increase in which the Utility Group operates is Connecticut. Reliability costs have been previously approved for recovery by the DPUC in CL&P's 2001 Competitive Transition Assessment (CTA) reconciliation filing. All RMR costs, which began in 2002 and are considered reliability costs, have been recovered from customers to date and are subject to review in CL&P's 2002 CTA reconciliation filing, which was filed on March 31, 2003. PPL Corporation (PPL) and NRG Power Marketing, Inc. (NRG-PM) have sought RMR treatment from FERC for certain of their Connecticut units. PPL's request is still pending. NRG- PM's request for full cost of service recovery was denied; however, FERC did permit recovery of certain "going forward" maintenance costs, a temporary safe harbor from the ISO-NE price cap under certain circumstances, and the ability to set the energy price at certain times. Management cannot determine the impact on the components of LMP in the market related to these arrangements at this time. NU Enterprises: Select Energy currently serves 50 percent of CL&P's standard offer service. If it is ultimately concluded that the incremental LMP costs, which began on March 1, 2003, are the responsibility of the standard offer service suppliers, NU Enterprises' pre-tax earnings for the first quarter of 2003 would be reduced by $7.8 million. Also, NU Enterprises' and NU's earnings estimates do not include incremental LMP costs, which could be substantial for the remainder of 2003. Other impacts of SMD on its wholesale marketing business could be significant. As more information regarding the various impacts of SMD becomes available, there could be additional adverse effects that management cannot determine at this time. NU Enterprises - -------------- Subsidiaries: NU Enterprises, Inc. is the parent company of Select Energy, Northeast Generation Company (NGC), SESI, Northeast Generation Services Company (NGS), and their respective subsidiaries, which is referred to as "NU Enterprises," collectively. Holyoke Water Power Company (HWP) is also included in NU Enterprises. Select Energy engages in wholesale and retail energy marketing activities and limited energy trading activities for price discovery and risk management of wholesale marketing activities. NU Enterprises owns 1,438 MW of generation capacity, consisting of 1,291 MW at NGC and 147 MW at HWP, which are used to support Select Energy's wholesale marketing business. SESI performs energy management services for large industrial, commercial and institutional facilities, including the United States Department of Defense, and engages in energy related construction services. NGS operates and maintains NGC's and HWP's generation assets and provides third-party electrical, mechanical, and engineering contracting services. Outlook: NU Enterprises improved financial performance in the first quarter of 2003 compared to the first quarter of 2002. Management continues to believe that NU Enterprises will earn $0.15 to $0.25 per share for 2003. The wholesale marketing business obtained a significant level of new contracts in the first quarter of 2003. On March 1, 2003, Select Energy began serving Central Maine Power and Bangor-Hydro Electric Company under a new six-month agreement that is expected to generate $30 million in revenue. Select Energy was also successful in obtaining 1,200 MW of sales contracts in the latest New Jersey basic generation service auction. Select Energy estimates it will sell 700 MW for a 10-month period beginning August 1, 2003, and 500 MW for a 34-month period also beginning August 1, 2003. These contracts are expected to generate approximately $400 million in revenue. Select Energy also entered into a new six-month contract with National Grid for default service for certain of its subsidiaries that started in late April 2003. This contract is expected to generate $75 million of additional revenue through October 2003. In addition to new business, more normal precipitation would positively impact NGC's hydroelectric generating plants. Output has already increased in the first quarter of 2003 by about 40 percent compared to the first quarter of 2002 resulting in $1.6 million of additional earnings in 2003 as compared to 2002. Management currently believes that the wholesale marketing business will generate the gross margins required to meet their 2003 earnings estimate. Approximately 85 percent of the total margin needed to meet the wholesale marketing business' 2003 earnings estimate has been contracted in the first quarter of 2003. To meet the earnings estimate, the wholesale marketing business will need to successfully manage its portfolio of contracts to retain the estimated origination margins. The retail marketing business incurred losses of approximately $2 million in the first quarter of 2003, compared with losses of approximately $14 million in the first quarter of 2002. Management is hopeful that the retail group, as previously projected, will achieve break-even financial performance for 2003. However, through the first quarter of 2003, approximately 40 percent of the margin needed to cover projected costs and break-even has been contracted. Retail gas customers have been hesitant to commit to long-term contracts during this period of high prices. Select Energy is serving many of these customers on a month-to-month basis at relatively low margins. The retail marketing business will also need to manage its portfolio to realize the estimated margin for the contracts it has already entered into but has not yet served. Intercompany Transactions: CL&P's standard offer service purchases from Select Energy represented approximately $141 million of total NU Enterprises' revenues for the first quarter of 2003. Other transactions between CL&P and Select Energy amounted to approximately $36 million in revenues for Select Energy in the first quarter of 2003. Select Energy continues to provide standard offer service for its affiliate WMECO through December 31, 2003. WMECO's purchases from Select Energy represented approximately $39 million of total NU Enterprises' revenues in the first quarter of 2003. These amounts are eliminated in consolidation. NU Enterprises' Market and Other Risks - -------------------------------------- Overview: For further information on risk management activities, see "Competitive Energy Subsidiaries' Market and Other Risks" in NU's combined report on Form 10-K. Risk management within NU Enterprises, including Select Energy, is organized by management to address the market, credit and operational exposures arising from the company's primary business segments: wholesale marketing (including limited trading) and retail marketing. The framework and degree to which these risks are managed and controlled is consistent with the limitations imposed by NU's Board of Trustees as established and communicated in NU's overall risk management policies and procedures. Wholesale and Retail Marketing: Select Energy manages its portfolio of wholesale and retail marketing contracts and assets to maximize value while maintaining an acceptable level of risk. At forward market prices in effect at March 31, 2003, the wholesale marketing portfolio, which includes the CL&P standard offer service contract and other contracts that extend to 2013, had a positive fair value. This positive fair value indicates a positive impact on Select Energy's gross margin in the future. However, there is significant volatility in the energy commodities markets that will impact this position between now and when the contracts are settled. Accordingly, there can be no assurances that Select Energy will realize the gross margin corresponding to the present positive fair value on its wholesale marketing portfolio. The gross margin realized could be at a level that is not sufficient to cover Select Energy's other operating costs, including the cost of corporate overhead. Hedging: For information on derivatives used for hedging purposes and nontrading derivatives, see Note 2, "Derivative Instruments, Market Risk and Risk Management," to the consolidated financial statements. Energy Trading Activities in Wholesale Marketing: Energy trading transactions at Select Energy include financial transactions and physical delivery transactions for electricity, natural gas and oil in which Select Energy is attempting to profit from changes in market prices. Energy trading contracts are recorded at fair value, and changes in fair value impact earnings. At March 31, 2003, Select Energy had trading derivative assets of $162.8 million and trading derivative liabilities of $117 million on a counterparty- by-counterparty basis, for a net positive position of $45.8 million on the entire trading portfolio. These amounts are combined with other derivatives and are included in derivative assets and derivative liabilities on the accompanying consolidated balance sheets. Information regarding the other derivatives is included in Note 2, "Derivative Instruments, Market Risk and Risk Management," to the consolidated financial statements. There can be no assurances that Select Energy will actually realize cash corresponding to the present positive net fair value of its trading portfolio. Numerous factors could either positively or negatively affect the realization of the net fair value amount in cash. These include the volatility of commodity prices, changes in market design or settlement mechanisms, the outcome of future transactions, the performance of counterparties, and other factors. Select Energy has policies and procedures requiring all trading positions to be marked-to-market at the end of each trading day. Controls are in place segregating responsibilities between individuals actually trading (front office) and those confirming the trades (middle office). The determination of the portfolio's fair value is the responsibility of the middle office independent from the front office. The methods used to determine the fair value of energy trading contracts are identified and segregated in the table of fair value of contracts at March 31, 2003. A description of each method is as follows: 1) prices actively quoted primarily represent New York Mercantile Exchange futures and options that are marked to closing exchange prices; 2) prices provided by external sources primarily include over-the-counter forwards and options, including bilateral contracts for the purchase or sale of electricity or natural gas, and are marked to the mid-point of bid and ask quotes; and 3) prices based on models or other valuation methods primarily include forwards and options and other transactions for which specific quotes are not available. These transactions are modeled using available market information, generally accepted gas to electricity heat rate conversion models, or the Blacks option pricing model. Select Energy currently has one contract which is marked to model. This contract expires in 2006 and had a fair value of $4.7 million at March 31, 2003. Broker quotes for electricity are available through the year 2005, and models are generally used for the years 2006 and thereafter. Select Energy has sourced contracts with maturities in excess of four years. Accordingly, the value of these contracts and the related power supply contracts do not need to be determined with a model. Broker quotes for natural gas are available through 2013. Generally, valuations of short-term contracts derived from quotes or other external sources are more reliable should there be a need to liquidate the contracts, while valuations based on models or other methods for longer-term contracts are less certain. Accordingly, there is a risk that contracts will not be realized at the amounts recorded. As of and for the three months ended March 31, 2003, the sources of the fair value of trading contracts and the changes in fair value of these trading contracts are included in the following tables. Intercompany transactions are eliminated and not reflected in the amounts below. - ------------------------------------------------------------------------------- Fair Value of Trading Contracts - ------------------------------------------------------------------------------- (Millions of Dollars) At March 31, 2003 - ------------------------------------------------------------------------------- Maturity Maturity of Maturity in Total Less than One to Four Excess of Fair Sources of Fair Value One Year Years Four Years Value - ------------------------------------------------------------------------------- Prices actively quoted $(3.5) $ 0.1 $ - $(3.4) Prices provided by external sources 8.8 18.6 17.1 44.5 Prices based on models or other valuation methods - 4.7 - 4.7 - ------------------------------------------------------------------------------- Totals $ 5.3 $23.4 $17.1 $45.8 - ------------------------------------------------------------------------------- The fair value of energy trading contracts increased $4.8 million from $41 million at December 31, 2002 to $45.8 million at March 31, 2003. This increase is primarily due to a positive change in fair value of existing contracts and to contracts realized or otherwise settled during the period. There were no changes in valuation techniques or assumptions in the first quarter of 2003. - ------------------------------------------------------------------------------- (Millions of Dollars) Total Fair Value - ------------------------------------------------------------------------------- Three Months Ended March 31, 2003 - ------------------------------------------------------------------------------- Fair value of trading contracts outstanding at the beginning of the period $41.0 Contracts realized or otherwise settled during the period (2.8) Fair value of new contracts when entered into during the period - Changes in fair values attributable to changes in valuation techniques and assumptions - Changes in fair value of contracts 7.6 - ------------------------------------------------------------------------------- Fair value of trading contracts outstanding at the end of the period $45.8 - ------------------------------------------------------------------------------- Changing Market: The breadth and depth of the market for energy trading and marketing products in Select Energy's market continues to be adversely affected by the withdrawal or financial weakening of a number of companies who have historically done significant amounts of business with Select Energy. In general, the market for such products has become shorter term in nature with less liquidity, and participants are more often unable to meet Select Energy's credit standards without providing cash or letter of credit support. Select Energy is being adversely affected by these factors, and there could be a continuing adverse impact on Select Energy's business. The decrease in the number of counterparties participating in the market for long- term energy contracts continues to impact Select Energy's ability to determine the estimated fair value of its long-term wholesale marketing energy contracts. Changes are occurring in the administration of transmission systems in territories in which Select Energy does business. Regional transmission organizations are being contemplated, and SMD was implemented in New England on March 1, 2003. As more information regarding these market changes becomes available, there could be additional adverse effects that management cannot determine at this time. Counterparty Credit: Counterparty credit risk relates to the risk of loss that Select Energy would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. Select Energy has established written credit policies with regard to its counterparties to minimize overall credit risk. 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. At March 31, 2003, approximately 75 percent of Select Energy's counterparty credit exposure to wholesale marketing and trading counterparties was cash collateralized or rated BBB- or better. Approximately five percent of the counterparty credit exposure was to unrated municipalities. At March 31, 2003, positions with three counterparties collectively represented approximately $66 million or 41 percent of the $162.8 million trading derivative assets. One of these counterparties has an investment grade credit rating. Another counterparty's position is secured with letters of credit and cash collateral. The third counterparty representing approximately $17.3 million is an unrated generation entity. None of the other counterparties represented more than 10 percent of the trading derivative assets. Select Energy manages the credit risk of its trading portfolio in accordance with established credit risk management policies and procedures. Select Energy Credit: A number of Select Energy's contracts require the posting of additional collateral in the form of cash or letters of credit in the event NU's ratings were to decline and in increasing amounts dependent upon the severity of the decline. At NU's present investment grade ratings, Select Energy has not had to post any collateral based on credit downgrades. Were NU's unsecured ratings to decline two to three levels to sub-investment grade, Select Energy could, under its present contracts, be asked to provide approximately $206 million of collateral or letters of credit to various unaffiliated counterparties and approximately $63 million to several independent system operators and unaffiliated local distribution companies, which management believes NU would be able to provide. NU's ratings are currently stable, and management does not believe that at this time there is a significant risk of a ratings downgrade to sub-investment grade levels. Business Development and Capital Expenditures - --------------------------------------------- Utility Group: In October 2001, CL&P filed an application with the Connecticut Siting Council (CSC) to construct a new 345,000 volt overhead transmission line from Norwalk, Connecticut to Bethel, Connecticut. The line would help address the difficulties in serving the load in southwest Connecticut that create high LMP costs in Connecticut. In March 2003, CL&P revised its proposal following a settlement with the towns through which the transmission line is proposed. The proposal would place approximately half of the line underground and would increase the cost to $185 million from $135 million. The CSC is expected to vote on the proposal in June 2003, and CL&P hopes to begin construction by the end of 2003 and place the line into service in mid-2005. At March 31, 2003, CL&P had capitalized approximately $9.1 million related to this project. CL&P expects to file for approval of a separate 345,000 volt transmission line from Norwalk, Connecticut to Middletown, Connecticut in the third quarter of 2003. Estimated construction costs of this project are approximately $500 million. CL&P will jointly site this project with United Illuminating with CL&P owning 80 percent or approximately $400 million of the project. At March 31, 2003, CL&P had capitalized approximately $3.2 million related to this project. In September 2002, the CSC approved a plan to replace an undersea electric transmission line between Norwalk, Connecticut and Northport - Long Island, New York, at an estimated cost of $80 million. CL&P and the Long Island Power Authority each own approximately 50 percent of the line. The project still requires federal and New York state approvals. Given the approval process and the uncertainty created by the recent damage to the existing transmission line, the expected in-service date is currently under evaluation. At March 31, 2003, CL&P had capitalized approximately $5.3 million related to this project. Yankee Gas Services Company (Yankee Gas) is seeking to obtain rate approval from the DPUC to build a two billion cubic foot liquefied natural gas storage and production facility in Waterbury, Connecticut. Hearings were held in March 2003 with a final decision expected in the second quarter of 2003. If approved, construction of the facility, which is expected to cost approximately $60 million, could begin in the fourth quarter of 2003. At March 31, 2003, Yankee Gas had capitalized approximately $0.8 million related to this project. In late May 2003, the Governor of New Hampshire is expected to sign into law a bill that will permit PSNH to acquire the assets of Connecticut Valley Electric Company (CVEC). The acquisition of CVEC's assets will add 25 MW of new load to PSNH and approximately 10,000 customers in 13 towns. The CVEC transaction is still subject to approval by the FERC and the New Hampshire Public Utilities Commission (NHPUC) and is expected to close in December 2003. Merchant Energy Company Counterparty Exposures - ---------------------------------------------- Certain subsidiaries of NU, including CL&P, Yankee Gas, Select Energy, and NGS have entered into various transactions with subsidiaries of NRG Energy, Inc. (NRG). NRG's credit rating has been downgraded to below investment grade by all three major rating agencies, and NRG is presently in default on debt service payments. Management does not expect that the resolution of the transactions with NRG will have a material adverse effect on NU's consolidated financial condition or results of operations. For further information, see Part II, Item 1, "Legal Proceedings," included in this combined report on Form 10-Q. Restructuring and Rate Matters - ------------------------------ Connecticut - CL&P: Since retail competition began in Connecticut in 2000, only a small number of customers have opted to choose an alternate supplier as virtually all of CL&P's customers have continued to procure their electricity through CL&P's standard offer service. In 2003, Select Energy will continue to supply 50 percent of CL&P's standard offer supply service with NRG-PM, a subsidiary of NRG, contracted to supply 45 percent and a subsidiary of Duke Energy, Inc. contracted to supply the remaining 5 percent of service. CL&P continues to evaluate NRG-PM's ability to meet its obligations under the standard offer service contract, including the possibility that NRG-PM and the other standard offer service suppliers could ultimately be responsible for incremental LMP costs. If CL&P is required to seek an alternate source of supply, CL&P would pursue recovery of any additional costs associated with obtaining such supply from NRG-PM pursuant to the contract and may be required to seek DPUC approval to flow through any such costs to customers. Management believes that recovery of these costs, should they be incurred, would be permitted under the provisions of Connecticut's electric utility restructuring legislation and with the DPUC's prior decisions. On February 21, 2003, Fitch Ratings lowered its rating outlook on CL&P to negative as a result of its concern over timely recovery of purchased-power costs if NRG-PM were to default on its CL&P standard offer obligations and CL&P needs to acquire replacement supply service at significantly higher prices. On September 27, 2001, CL&P filed its application with the DPUC for approval of the disposition of the proceeds in the amount of approximately $1.2 billion from the sale of the Millstone units. The DPUC's final decision regarding this application was issued on February 27, 2003, and decreased the amount of net proceeds used to reduce stranded costs to $26.9 million from the $40.1 million reduction of stranded costs in its draft decision. The earnings impact in the first quarter of 2003 of the final decision resulted in an increase in net income of $2.6 million. CL&P continues to be subject to the earnings sharing mechanism implemented by the DPUC, under which CL&P's earnings in excess of a 10.3 percent return on equity will be shared equally by shareholders and ratepayers. The next earnings sharing calculation will be based on CL&P's earnings for the twelve months ended June 30, 2003. On April 3, 2003, CL&P filed its annual CTA and Systems Benefit Charge (SBC) reconciliation with the DPUC. For the year ended December 31, 2002, total CTA revenues and excess Generation Services Charge (GSC) revenues exceeded the CTA revenue requirement by approximately $93.5 million. CL&P has proposed that a portion of the CTA/GSC overrecovery be utilized to reduce nuclear stranded costs and the remaining amount be carried forward to 2003. For the same period, SBC revenues exceeded the SBC revenue requirement by approximately $21.4 million. After allocating a portion of the SBC overrecovery as ordered by the DPUC in a prior decision, CL&P has proposed that the remaining overrecovery of $18.6 million be applied to the CTA. Management expects a decision from the DPUC in this docket by the end of 2003. CL&P expects to file a distribution rate case with the DPUC in mid-2003 that would be effective January 1, 2004. Also in the second half of 2003, CL&P will need to secure bids for power supply contracts for 2004 to meet the needs of its customers. Management has not yet identified what level of rates it will request for 2004, but believes that several factors could combine to result in a significant increase in supply costs in 2004. The first is the expiration of current standard offer supply contracts. Another factor is the impact of LMP. CL&P's reliability improvements and transmission construction program will also impact the level of rates CL&P will request in 2004. The Connecticut state legislature is considering revisions to its 1998 electric utility industry restructuring statutes. Senate Bill 733 passed the Energy and Public Utilities and Environment committees in early 2003. Among other actions, the bill would 1) extend the offering of standard offer service rates for an additional three years to January 1, 2007; 2) allow base rates to return to 1996 levels, which are above existing levels; and 3) allow electric distribution companies, such as CL&P, to earn a transaction management fee for buying standard offer service for retail customers. The legislation, if passed and signed by the Connecticut Governor, would likely impact the aforementioned CL&P distribution rate case. Various Connecticut state budget proposals would direct approximately $100 million of electric utility revenues to the state's general fund, rather than toward energy conservation programs. In 2002, CL&P earned approximately $3.3 million in incentive payments on its energy conservation programs, and future earnings from conservation programs would be reduced if one of these budget proposals passes unchanged. Connecticut - Yankee Gas: In December 2002, the DPUC opened a new docket concerning Yankee Gas overearnings. Yankee Gas received a draft decision related to this docket on May 2, 2003. In the draft decision, the DPUC indicated that Yankee Gas' rates do not need to be adjusted. A final decision is expected on May 14, 2003. On May 7, 2003, the DPUC issued a draft decision in the Infrastructure Expansion Rate Mechanism (IERM) docket. The draft decision concludes that the basic concept of IERM is valid, appropriate and beneficial. In the draft decision, the DPUC estimated 2003 IERM overrecoveries of $3.6 million and proposed refund of overrecoveries to customers from December 2003 through February 2004. The final decision is scheduled for May 21, 2003. If the final decision is consisent with the draft decision, management does not expect that the decision will have a material impact on results of operations. New Hampshire: On February 1, 2003, in accordance with the "Agreement to Settle PSNH Restructuring" (Restructuring Settlement) and state law, PSNH raised the transition service (TS) rate for residential and small commercial customers to $0.0460 per kilowatt-hour (kWh) from $0.0440 per kWh. On the same date, PSNH also raised its TS rate for large commercial and industrial customers to $0.0467 per kWh from $0.0440 per kWh. Given recent changes in the energy markets, PSNH is unable to determine if these rates will be adequate to currently recover its generation and purchased-power costs, including the recovery of carrying costs on PSNH's generation investment. If actual costs exceed those recoveries, PSNH will defer those costs for future recovery from customers through its Stranded Cost Recovery Charge (SCRC). If recoveries exceed PSNH's costs, those overrecoveries will be credited against PSNH's Part 3 stranded cost balance. PSNH's delivery rates are fixed by the Restructuring Settlement until February 1, 2004. Under the Restructuring Settlement, PSNH must file a rate case by December 31, 2003, for the purpose of commencing a review of PSNH's delivery rates. In April 2003, the New Hampshire state legislature approved legislation that would require PSNH to retain ownership of its fossil and hydroelectric generation assets until April 30, 2006. Subsequent to that time, PSNH may sell the assets if the NHPUC finds such sale to be in the best economic interest of customers. On April 23, 2003, the Governor of New Hampshire signed the bill into law. This legislation effectively extends the time period in which PSNH is required to supply TS and default service to its retail customers until the sale of its fossil and hydroelectric generation assets. The NHPUC will continue its regulatory oversight of TS and default service rates. On May 1, 2003, PSNH made a SCRC reconciliation filing with the NHPUC for the period January 1, 2002, through December 31, 2002. This filing reconciles stranded cost revenues against actual stranded costs with any difference being credited against Part 3 stranded costs or deferred for future recovery. Included in this stranded cost reconciliation filing are 1) a calculation of the generation costs for the filing period, 2) the Seabrook sale net proceeds calculation and 3) a request to recover, as a non-securitized stranded cost, certain deferred costs associated with PSNH's initial efforts to sell its fossil and hydroelectric generation assets as was previously required by the Restructuring Settlement. Management does not expect that the outcome of this docket will have a material adverse impact on PSNH's earnings or its financial position. Under New Hampshire law, PSNH is encouraged to enter into negotiations with independent power producers (IPPs) to terminate or renegotiate over-market power purchase obligations. In May 2003, the NHPUC is expected to issue an order approving a stipulation and settlement between PSNH, the NHPUC staff, the Office of Consumer Advocate, owners of fourteen small hydroelectric IPPs, and the Town of Goffstown, New Hampshire. Under the terms of this settlement, PSNH will make a lump sum payment totaling $20.4 million to the fourteen IPPs on May 31, 2003, in exchange for the termination of the existing power purchase obligations between PSNH and these IPPs. The buy out costs will be deferred as a regulatory asset, and recovered, including a return, over the remaining term of the initial contractual arrangements as a Part 2 stranded cost. Massachusetts: In December 2002, the DTE approved an overall increase of approximately 1.8 percent in WMECO's non-contract retail delivery rates, primarily reflecting slightly increased standard offer costs as well as other inflationary factors. WMECO's standard offer service is supplied by Select Energy at a rate for 2003 of approximately $0.0500 per kWh. An unaffiliated company won the bid to serve WMECO's default service for the period of January 1, 2003, through June 30, 2003, at an average price of $0.0510 per kWh. On March 31, 2003, WMECO filed its 2002 annual transition cost reconciliation with the DTE. This filing reconciled the recovery of stranded generation costs for calendar year 2002 and included the renegotiated purchased power contract related to the Vermont Yankee nuclear unit. Proceedings in this docket are expected to begin in the second half of 2003. On April 24, 2003, the DTE issued an order addressing three issues dealing with the future procurement of default service: 1) the cost components to be included in the calculation of default service rates, 2) default service pricing options and procurement strategies and 3) the appropriate role of distribution companies in moving their customers toward competitive supply. While making changes in the way WMECO procures default service supply for its customers, the order will not have an impact on WMECO's earnings. Critical Accounting Policies and Estimates - ------------------------------------------ Funded Status of Pension Plan: At December 31, 2002, the assets of the NU noncontributory defined benefit plan (Plan) exceeded the accumulated benefit obligation (ABO) by approximately $78 million. The ABO is the obligation for employee service provided to date and does not assume future compensation increases. At April 30, 2003, the estimated fair value of Plan assets exceeded the December 31, 2002 ABO by approximately $101 million. If the ABO, when remeasured next on December 31, 2003, exceeds the fair value of Plan assets at that time, then NU would be required to record an additional minimum liability. Other Matters - ------------- Other Commitments and Contingencies: For further information regarding other commitments and contingencies, see Note 4, "Commitments and Contingencies," 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, regulatory proceedings, 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 weather patterns, changes in laws, developments in legal or public policy doctrines, technological developments, volatility in electric and natural gas commodity markets, and other presently unknown or unforeseen factors. RESULTS OF OPERATIONS The components of significant income statement variances for the first quarter of 2003 are provided in the table below. Income Statement Variances (Millions of Dollars) 2003 over/(under) 2002 ---------------------- Amount Percent ------ ------- Operating Revenues $404 31% Operating Expenses: Fuel, purchased and net interchange power 343 47 Other operation (9) (4) Maintenance (6) (12) Depreciation (3) (5) Amortization 37 (a) Amortization of rate reduction bonds (7) (15) Taxes other than income taxes (1) (1) ---- ---- Total operating expenses 354 30 ---- ---- Operating income 50 44 ---- ---- Interest expense, net (3) (5) Other income/(loss), net 15 (a) ---- ---- Income before income tax expense 68 (a) Income tax expense 26 (a) ---- ---- Income before preferred dividends of subsidiaries 42 (a) ---- ---- Preferred dividends of subsidiaries - - ---- ---- Net income $ 42 (a)% ==== ==== (a) Percent greater than 100. Comparison of the First Quarter of 2003 to the First Quarter of 2002 Operating Revenues Total revenues increased by $404 million or 31 percent in the first quarter of 2003, compared with the same period in 2002, due to higher revenues from NU Enterprises ($231 million after intercompany eliminations) and higher Utility Group revenues ($173 million after intercompany eliminations). NU Enterprises' revenue increase is primarily due to higher wholesale revenues for Select Energy resulting from the New Jersey basic generation service. The Utility Group revenue increase is primarily due to higher retail revenue ($119 million) and higher wholesale revenue ($54 million). The regulated retail revenue increase is primarily due to higher retail electric sales ($73 million) and higher Yankee revenue resulting from higher purchased gas adjustment clause revenue ($27 million) and higher sales volumes ($21 million). Regulated retail electric kWh sales increased by 8.9 percent and firm natural gas sales increased by 18.3 percent in the first quarter of 2003. The regulated wholesale revenue increase is primarily due to higher prices in 2003. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased by $343 million or 47 percent in the first quarter of 2003, primarily due to higher wholesale activity at NU Enterprises ($257 million after intercompany eliminations) and higher purchased-power costs for the Utility Group primarily as a result of power purchased to serve higher retail sales ($90 million after intercompany eliminations). Other Operation and Maintenance Other operation and maintenance (O&M) expenses decreased $15 million in the first quarter of 2003, primarily due to lower nuclear expenses as a result of the sale of Seabrook in the last quarter of 2002 ($18 million), partially offset by higher distribution costs ($3 million). Depreciation Depreciation decreased in 2003 due to lower decommissioning expenses resulting from the sale of Seabrook in the last quarter of 2002 ($2 million), lower NU Enterprises' depreciation resulting from the study to lengthen the useful lives of certain generation assets ($3 million), partially offset by higher Utility Group depreciation resulting from higher plant balances. Amortization Amortization increased in 2003, primarily due to higher amortization related to the Utility Group's recovery of stranded costs in part resulting from higher wholesale revenue from the sale of IPP related energy ($37 million), partially offset by the decrease in amortization of rate reduction bonds ($7 million). Interest Expense, Net Interest expense, net decreased in the first quarter of 2003, primarily due to lower rate reduction bond interest ($2 million) and the retirement of NAEC's debt in November of 2002 ($1 million). Other Income/(Loss), Net Other income/(loss), net increased primarily due to a 2002 charge in the first quarter reflecting a write-down of NU's investments in NEON and Acumentrics ($15 million). Income Tax Expense Income tax expense increased due to higher taxable income. INDEPENDENT ACCOUNTANTS' REPORT To the Board of Trustees and Shareholders of Northeast Utilities We have reviewed the accompanying condensed consolidated balance sheet of Northeast Utilities and subsidiaries ("the Company") as of March 31, 2003, and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet and consolidated statement of capitalization of Northeast Utilities and subsidiaries as of December 31, 2002, and the related consolidated statements of income, comprehensive income, shareholders' equity, cash flows, and income taxes for the year then ended (not presented herein); and in our report dated January 28, 2003 (February 27, 2003 as to Note 8A), we expressed an unqualified opinion (which includes explanatory paragraphs with respect to the Company's adoption in 2001 of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended and its adoption in 2002 of Emerging Issues Task Force Issue 02-3, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" and SFAS No, 142 "Goodwill and Other Intangible Assets") on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Hartford, Connecticut May 9, 2003 Northeast Utilities and Subsidiaries The Connecticut Light and Power Company and Subsidiaries Public Service Company of New Hampshire and Subsidiaries Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (All Companies) A. Presentation The accompanying unaudited financial statements should be read in conjunction with this complete Form 10-Q and the Annual Reports of Northeast Utilities (NU or the company), The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), and Western Massachusetts Electric Company (WMECO), which were filed as part of the NU 2002 Form 10-K, and the current report on Form 8-K dated January 28, 2003. The accompanying financial statements contain, in the opinion of management, all adjustments necessary to present fairly NU's and each NU company's financial position at March 31, 2003, the results of operations and statements of cash flows for the three-month periods ended March 31, 2003 and 2002. All adjustments are of a normal, recurring nature except those described in Note 4A. Due primarily to the seasonality of NU's business, the results of operations and statements of cash flows for the three-month periods ended March 31, 2003 and 2002, are not indicative of the results expected for a full year. The consolidated financial statements of NU and of its subsidiaries, as applicable, include the accounts of all their respective subsidiaries. Intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 period data have been made to conform with the current period presentation. B. Regulatory Accounting and Assets The accounting policies of NU's Utility Group conforms to accounting principles generally accepted in the United States of America applicable to rate-regulated enterprises and 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." The transmission and distribution businesses of CL&P, PSNH and WMECO, along with PSNH's generation business and Yankee Gas Services Company's (Yankee Gas) distribution business continue to be cost-of-service rate regulated, and management believes the application of SFAS No. 71 to that portion of those businesses continues to be appropriate. Management also believes it is probable that NU's operating companies will recover their investments in long-lived assets, including regulatory assets. In addition, all material regulatory assets are earning an equity return, except for securitized regulatory assets which are not supported by equity. The components of NU's regulatory assets are as follows: --------------------------------------------------------------------- March 31, December 31, (Millions of Dollars) 2003 2002 --------------------------------------------------------------------- Recoverable nuclear costs $ 138.5 $ 85.4 Securitized regulatory assets 1,848.0 1,891.8 Income taxes, net 294.8 331.9 Unrecovered contractual obligations 237.1 239.3 Recoverable energy costs, net 293.3 299.6 Other 21.5 61.9 --------------------------------------------------------------------- Totals $2,833.2 $2,909.9 --------------------------------------------------------------------- C. New Accounting Standards Energy Trading and Risk Management Activities: In October 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached consensuses on EITF Issue No. 02-3, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." One consensus rescinded EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities for Energy Trading Activities," under which Select Energy, Inc. (Select Energy) 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 SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. NU adopted this consensus effective October 1, 2002. 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. NU adopted net reporting effective July 1, 2002, before this consensus was reached by the EITF. The three months ended March 31, 2002, reflect net reporting. The effects of this reporting for the three months ended March 31, 2002, which have been previously reported, are as follows: --------------------------------------------------------------------- Operating Fuel, Purchased and Revenues Net Interchange Power --------------------------------------------------------------------- (Millions of Dollars) --------------------------------------------------------------------- Operating Revenues: As previously reported $1,910.7 $1,352.8 Impact of reclassification (626.2) (626.2) --------------------------------------------------------------------- As currently reported $1,284.5 $ 726.6 --------------------------------------------------------------------- The EITF continues to consider guidance on accounting for energy trading activities. The EITF has proposed Issue No. 02-L, "Reporting Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, and Not Held for Trading Purposes." EITF Issue No. 02-L is expected to address whether or not gains or losses on non-trading derivatives should be presented gross as revenues and expenses or on a net basis in revenues. Management will determine the impact, if any, that EITF Issue No. 02-L will have on the classification of revenues and expenses if and when the EITF reaches a consensus. Derivative Accounting: Effective January 1, 2001, NU adopted SFAS No. 133, as amended. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends SFAS No. 133. This new statement incorporates interpretations that were included in FASB Derivative Implementation Group guidance, clarifies certain conditions, and amends other existing pronouncements. Management is evaluating the impact of SFAS No. 149 on the consolidated financial statements, but does not believe that there will be a significant impact as a result of the issuance of this new statement. Asset Retirement Obligations: In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement requires that legal obligations associated with the retirement of property, plant and equipment be recognized as a liability at fair value when incurred and when a reasonable estimate of the fair value of the liability can be made. NU adopted SFAS No. 143 on January 1, 2003. For the adoption of SFAS No. 143, management completed a review for potential asset retirement obligations (AROs), and did not identify any material AROs that have been incurred. However, management has identified certain removal obligations which arise in the ordinary course of business that either have a low probability of occurring or are not material in nature. These types of obligations would be recorded as they are incurred and relate to transmission and distribution lines and poles, telecommunication towers, transmission cables and certain Federal Energy Regulatory Commission or state regulatory agency re-licensing issues. Guarantees: In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that disclosures be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 does not apply to certain guarantee contracts, such as residual value guarantees provided by lessees in capital leases, guarantees that are accounted for as derivatives, guarantees that represent contingent consideration in a business combination, guarantees issued between either parents and their subsidiaries or corporations under common control, a parent's guarantee of a subsidiary's debt to a third party, and a subsidiary's guarantee of the debt owed to a third party by either its parent or another subsidiary of that parent. The initial recognition and initial measurement provisions of FIN 45 are applicable to NU on a prospective basis to guarantees issued or modified after January 1, 2003. The adoption of the initial recognition and initial measurement provisions of FIN 45 had no impact on NU's consolidated financial statements. NU provides credit assurance in the form of guarantees and letters of credit in the normal course of business primarily for the financial performance obligations of NU Enterprises. NU would be required to perform under these guarantees in the event of non- performance under these obligations by NU Enterprises. NU currently has authorization from the Securities and Exchange Commission to provide up to $500 million of guarantees through September 30, 2003, and has applied for authority to increase this amount to $750 million. At March 31, 2003, payments guaranteed by NU, primarily on behalf of NU Enterprises, totaled $236.8 million. Additionally, NU had $28.2 million of letters of credit outstanding at March 31, 2003, and in conjunction with its investment in R.M. Services, Inc., NU guarantees a $3 million line of credit through 2005. Also, in conjunction with its wholly owned subsidiary Select Energy Services, Inc. (SESI), NU provides guarantees of approximately $2 million in connection with SESI's issuance of debt under arrangements with a third party financing of long-term receivables. D. Stock-Based Compensation NU maintains an Employee Stock Purchase Plan and other long-term, stock-based incentive plans under the Northeast Utilities Incentive Plan (Incentive Plan). NU accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost for stock options is reflected in net income, as all options granted under those plans had an exercise price equal to or above the market value of the underlying common stock on the date of grant. At this time, NU has not elected to transition to expensing stock options under the fair value-based method of accounting for stock-based employee compensation. The following table illustrates the effect on net income and earnings per share (EPS) if NU had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation related to stock options. --------------------------------------------------------------------- For the Three Months Ended --------------------------------------------------------------------- (Millions of Dollars, March 31, March 31, except per share amounts) 2003 2002 --------------------------------------------------------------------- Net income, as reported $60.2 $18.6 Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects (0.6) (1.1) --------------------------------------------------------------------- Pro forma net income $59.6 $17.5 --------------------------------------------------------------------- Earnings per share: Basic and fully diluted - as reported $ 0.47 $ 0.14 Basic and fully diluted - pro forma $ 0.47 $ 0.14 --------------------------------------------------------------------- During the first quarter of 2003, NU granted approximately 375,000 shares of restricted stock under the Incentive Plan. For the three months ended March 31, 2003, approximately $0.1 million was expensed related to the restricted stock. No stock options were awarded. E. Other Income/(Loss), Net The pre-tax components of NU's other income/(loss), net items are as follows: --------------------------------------------------------------------- For the Three Months Ended --------------------------------------------------------------------- March 31, March 31, (Millions of Dollars) 2003 2002 --------------------------------------------------------------------- Investment write-downs $ - $(17.1) Investment income 3.9 5.0 Other, net (3.3) (1.9) --------------------------------------------------------------------- Totals $ 0.6 $(14.0) --------------------------------------------------------------------- F. Sale of Customer Receivables CL&P has an arrangement with a subsidiary of Citigroup, Inc. (Citigroup) under which CL&P can sell up to $100 million of accounts receivable. At March 31, 2003, CL&P had sold accounts receivable of $60 million to Citigroup with limited recourse through CL&P Receivables Corporation (CRC), a wholly owned subsidiary of CL&P. Additionally, at March 31, 2003, $6.1 million of assets were designated as collateral and restricted under the agreement with CRC. Concentrations of credit risk to the purchaser under this agreement with respect to the receivables are limited due to CL&P's diverse customer base within its service territory. At March 31, 2003, amounts sold to CRC from CL&P but not sold to the Citigroup subsidiary totaling $155.8 million are included in investments in securitizable assets on the consolidated balance sheets. At March 31, 2003 and December 31, 2002, $60 million and $40 million of accounts receivable were sold, respectively. 2. DERIVATIVE INSTRUMENTS, MARKET RISK AND RISK MANAGEMENT (NU, Select Energy, Yankee Gas) A. Derivative Instruments Effective January 1, 2001, NU 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 those contracts that meet the definition of a derivative and meet the fair value hedge requirements, the changes in fair value of the effective portion of those contracts are generally recognized on the balance sheet as both the hedge and the hedged item are recorded at fair value. 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. For information regarding recent accounting changes related to trading activities, see Note 1C, "New Accounting Standards," to the consolidated financial statements. During the first quarter of 2003, a negative $5.1 million, net of tax, was reclassified from other comprehensive income in connection with the consummation of the underlying hedged transactions and recognized in earnings. A negative $0.2 million, net of tax, was recognized in earnings for those derivatives that were determined to be ineffective and for the ineffective portion of cash flow hedges. Also during the first quarter of 2003, new cash flow hedge transactions were entered into which hedge cash flows through 2005. As a result of these new transactions and market value changes since January 1, 2003, other comprehensive income decreased by $3.7 million, net of tax. Accumulated other comprehensive income at March 31, 2003, was a positive $11.8 million, net of tax (increase to equity), relating to hedged transactions, and it is estimated that $7.2 million of this balance, net of tax, will be reclassified as an increase to earnings within the next twelve months. Cash flows from the hedge contracts are reported in the same category as cash flows from the underlying hedged transaction. The tables below summarize the derivative assets and liabilities at March 31, 2003 and December 31, 2002. These amounts do not include premiums paid, which are recorded as prepayments and amounted to $20.2 million and $26.7 million at March 31, 2003 and December 31, 2002, respectively. These amounts also do not include premiums received, which are recorded as other current liabilities and amounted to $24.1 million and $33.9 million at March 31, 2003 and December 31, 2002, respectively. The premium amounts relate primarily to energy trading activities. --------------------------------------------------------------------- At March 31, 2003 --------------------------------------------------------------------- (Millions of Dollars) Assets Liabilities Total --------------------------------------------------------------------- Select Energy: Trading $162.8 $(117.0) $45.8 Nontrading 3.0 (0.8) 2.2 Hedging 24.7 (7.8) 16.9 --------------------------------------------------------------------- Yankee Gas: Hedging 2.8 - 2.8 --------------------------------------------------------------------- NU Parent: Hedging 5.1 - 5.1 --------------------------------------------------------------------- Total $198.4 $(125.6) $72.8 --------------------------------------------------------------------- --------------------------------------------------------------------- At December 31, 2002 --------------------------------------------------------------------- (Millions of Dollars) Assets Liabilities Total --------------------------------------------------------------------- Select Energy: Trading $102.9 $(61.9) $41.0 Nontrading 2.9 - 2.9 Hedging 22.8 (2.0) 20.8 --------------------------------------------------------------------- Yankee Gas: Hedging 2.3 - 2.3 --------------------------------------------------------------------- Total $130.9 $(63.9) $67.0 --------------------------------------------------------------------- Select Energy Trading: To gather market intelligence and utilize this information in risk management activities for the wholesale marketing business, 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 March 31, 2003 and at December 31, 2002 were assets of $45.8 million and $41.0 million, respectively. Select Energy's trading portfolio includes 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. Select Energy's trading portfolio also includes 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. Select Energy Nontrading: Nontrading derivative contracts are used for delivery of energy related to Select Energy'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 net fair values of nontrading derivatives at March 31, 2003 and at December 31, 2002 were assets of $2.2 million and $2.9 million, respectively. Select Energy Hedging: Select Energy utilizes 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 also utilizes 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 maintains natural gas service agreements with certain customers to supply gas at fixed prices for terms extending through 2004. Select Energy has 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 March 31, 2003, the NYMEX futures contracts had notional values of $19.6 million and were recorded at fair value as a derivative asset of $5.4 million, net of tax, at March 31, 2003. In the first quarter of 2003 Select Energy designated new gas futures and financial gas swaps in New England to hedge cash flows throughout 2003 with a derivative liability value of $1.9 million, net of tax, at March 31, 2003. Yankee Gas Hedging: Yankee Gas maintains a master swap agreement with a financial counterparty to purchase gas at fixed prices. Under this master swap agreement, the purchase price of a specified quantity of gas for two unaffiliated customers is effectively fixed over the term of the gas service agreements with those customers for a period of time not extending beyond 2005. At March 31, 2003, the commodity swap agreement had a notional value of $9.1 million and was recorded at fair value as a derivative asset of $2.8 million with an offsetting fair value of the firm commitment recorded in current liabilities in the accompanying consolidated balance sheets. NU Parent Hedging: In March of 2003, NU parent entered into a fixed to floating interest rate swap on its $263 million, 7.25 percent fixed-rate note that matures on April 1, 2012. As a perfectly matched fair value hedge the changes in fair value of the swap and the hedged debt instrument are recorded on the consolidated balance sheets but are equal and offset in the consolidated statements of income. The change in the fair value of the hedged debt of $5.1 million, including accrued interest, is included as long-term debt on the consolidated balance sheets. Additionally, the resulting changes in interest payments made are recorded as adjustments to interest expense. 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. Select Energy Trading Portfolio: At March 31, 2003, Select Energy has calculated the market price resulting from a 10 percent change in forward market prices. That 10 percent change would result in approximately a positive or negative $0.8 million increase or decrease 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 nonquantifiable. Such risks principally include credit risk, which is not reflected in this sensitivity analysis. Select Energy 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 change in forward market prices. At March 31, 2003, a 10 percent change in market price would have resulted in an increase or decrease in fair value of approximately $10.8 million. The impact of a change in electricity, natural gas and oil prices on Select Energy's retail and wholesale marketing portfolio at March 31, 2003, is not necessarily representative of the results that will be realized when the commodities provided for in these contracts are physically delivered. C. Other Risk Management Activities Interest Rate Risk Management: NU manages its interest rate risk exposure by maintaining a mix of fixed and variable rate debt. At March 31, 2003, approximately 79 percent (67 percent including the debt subject to the fixed to floating interest rate swap in variable rate debt) of NU's long-term debt, including the current portion and fees and interest due for spent nuclear fuel disposal costs, is at a fixed interest rate. The remaining long-term debt is variable-rate and is subject to interest rate risk that could result in earnings volatility. Assuming a one percentage point increase in NU's variable interest rates, annual interest expense would have increased by $4.9 million. At March 31, 2003, NU parent maintained a fixed to floating interest rate swap to manage the risk associated with its $263 million of fixed-rate debt. 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. NU serves a wide variety of customers and suppliers that include independent power producers, industrial companies, gas and electric utilities, oil and gas producers, financial institutions, and other energy marketers. Margin accounts exist within this diverse group, and NU realizes interest receipts and payments related to balances outstanding in these margin accounts. This wide customer and supplier mix generates a need for a variety of contractual structures, products and terms which, in turn, requires NU to manage the portfolio of market risk inherent in those transactions in a manner consistent with the parameters established by NU's risk management process. NU's Utility Group has a lower level of credit risk related to providing electric and gas distribution service than NU Enterprises. Credit risks and market risks at NU Enterprises 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 NU entering into trading activities. The appropriateness of these limits is subject to continuing review. Concentrations among these counterparties may impact NU'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. 3. GOODWILL AND OTHER INTANGIBLE ASSETS Effective January 1, 2002, NU adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which ceased amortization of goodwill and certain intangible assets with indefinite useful lives. SFAS No. 142 also required that goodwill and intangible assets deemed to have indefinite useful lives be reviewed for impairment upon adoption of SFAS No. 142 and at least annually thereafter by applying a fair value-based test. Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value and if the implied fair value of goodwill based on the estimated fair value of the reporting unit is less than the carrying amount of the goodwill. There were no impairments or adjustments to the goodwill balances during the three-month periods ended March 31, 2003 and 2002. NU's reporting units that maintain goodwill are generally consistent with the operating segments underlying the reportable segments identified in Note 7, "Segment Information," to the consolidated financial statements. Consistent with the current way management reviews the operating results of its reporting units, NU's reporting units under the NU Enterprises reportable segment include: 1) the wholesale marketing reporting unit, 2) the retail marketing reporting unit, and 3) the services reporting unit. The wholesale marketing and retail marketing reporting units are comprised of the operations of Select Energy, Northeast Generation Company (NGC) and Holyoke Water Power Company (HWP), and the services reporting unit is comprised of the operations of SESI, Northeast Generation Services Company (NGS), Woods Network Services, Inc. (Woods Network), and the nonenergy related subsidiaries of Yankee Energy System, Inc. (Yankee). As a result, NU's revised reporting units that maintain goodwill are as follows: Yankee Gas, classified under the Utility Group - gas reportable segment, the wholesale and retail marketing reporting unit and the services reporting unit which are both classified under the NU Enterprises reportable segment. The goodwill balances of these reporting units are included in the table herein. At March 31, 2003, NU maintained $321 million of goodwill that is no longer being amortized, $17.2 million of identifiable intangible assets and $6.8 million of intangible assets not subject to amortization, totaling $345 million. At December 31, 2002, NU maintained $321 million of goodwill that is no longer being amortized, $18.1 million of identifiable intangible assets and $6.8 million of intangible assets not subject to amortization, totaling $345.9 million. These amounts are included on the consolidated balance sheets as goodwill and other purchased intangible assets, net. A summary of NU's goodwill balances at March 31, 2003 and December 31, 2002, by reportable segment and reporting unit is as follows: -------------------------------------------------------------------------- (Millions of Dollars) March 31, 2003 December 31, 2002 -------------------------------------------------------------------------- Utility Group - Gas: Yankee Gas $287.6 $287.6 NU Enterprises: Services 30.2 30.2 Wholesale and Retail Marketing 3.2 3.2 -------------------------------------------------------------------------- Totals $321.0 $321.0 -------------------------------------------------------------------------- At March 31, 2003 and December 31, 2002, NU's intangible assets and related accumulated amortization consisted of the following: -------------------------------------------------------------------------- At March 31, 2003 -------------------------------------------------------------------------- Gross Accumulated Net (Millions of Dollars) Balance Amortization Balance -------------------------------------------------------------------------- Intangible assets subject to amortization: Exclusivity agreement $17.7 $5.3 $12.4 Customer list 6.6 1.9 4.7 Customer backlog and employment related agreements 0.1 - 0.1 -------------------------------------------------------------------------- Totals $24.4 $7.2 $17.2 -------------------------------------------------------------------------- Intangible assets not subject to amortization: Customer relationships $ 3.8 Tradenames 3.0 -------------------------------------------- Totals $ 6.8 -------------------------------------------- -------------------------------------------------------------------------- At December 31, 2002 -------------------------------------------------------------------------- Gross Accumulated Net (Millions of Dollars) Balance Amortization Balance -------------------------------------------------------------------------- Intangible assets subject to amortization: Exclusivity agreement $17.7 $4.6 $13.1 Customer list 6.6 1.7 4.9 Customer backlog and employment related agreements 0.1 - 0.1 -------------------------------------------------------------------------- Totals $24.4 $6.3 $18.1 -------------------------------------------------------------------------- Intangible assets not subject to amortization: Customer relationships $ 3.8 Tradenames 3.0 -------------------------------------------- Totals $ 6.8 -------------------------------------------- NU recorded amortization expense of $0.9 million and $0.4 million for the three months ended March 31, 2003 and 2002, respectively, related to these intangible assets. Based on the current amount of intangible assets subject to amortization, the estimated annual amortization expense for each of the succeeding 5 years from 2004 through 2008 is $3.6 million in 2004 through 2007 and no amortization expense in 2008. These amounts may vary as purchase price allocations are finalized or as acquisitions and dispositions occur in the future. 4. COMMITMENTS AND CONTINGENCIES A. Restructuring and Rate Matters (CL&P, PSNH, WMECO) Connecticut: Standard market design (SMD) was implemented in New England on March 1, 2003. As part of SMD, locational marginal pricing (LMP) is utilized to assign value and causation to transmission congestion and line losses. Management has recorded $15.5 million of incremental LMP costs incurred in March 2003 as recoverable energy costs, which are regulatory assets. Management believes that these incremental LMP costs are unavoidable, are part of the prudent cost of providing regulated electric service in Connecticut and that these costs are probable of recovery from its customers. The Department of Public Utility Control (DPUC) has directed CL&P to pursue legal remedies against its standard offer suppliers in an effort to assign liability for incremental LMP costs to the suppliers. The DPUC indicated that it will support CL&P's efforts and that CL&P's failure to aggressively pursue legal remedies may result in ultimate disallowance of recovery of LMP- related costs. Recovery of incremental LMP costs will be allowed through the Energy Adjustment Clause but will be subject to refund and posting of a surety bond. On September 27, 2001, CL&P filed its application with the DPUC for approval of the disposition of the proceeds in the amount of approximately $1.2 billion from the sale of the Millstone units. The DPUC's final decision regarding this application was issued on February 27, 2003, and decreased the amount of net proceeds used to reduce stranded costs to $26.9 million from the $40.1 million reduction of stranded costs included in the DPUC's draft decision. The earnings impact of the final decision resulted in an increase in first quarter 2003 net income of $2.6 million. New Hampshire: On May 1, 2003, PSNH made a Stranded Cost Recovery Charge reconciliation filing with the New Hampshire Public Utilities Commission for the period January 1, 2002, through December 31, 2002. This filing reconciles stranded cost revenues against actual stranded costs with any difference being credited against Part 3 stranded costs or deferred for future recovery. Included in this stranded cost reconciliation filing are 1) a calculation of the generation costs for the filing period, 2) the Seabrook sale net proceeds calculation and 3) a request to recover, as a non-securitized stranded cost, certain deferred costs associated with PSNH's initial efforts to sell its fossil and hydroelectric generation assets as was previously required by the "Agreement to Settle PSNH Restructuring." Management does not expect that the outcome of this docket will have a material adverse impact on PSNH's earnings or its financial position. Massachusetts: On March 31, 2003, WMECO filed its 2002 annual transition cost reconciliation with the Massachusetts Department of Telecommunications and Energy (DTE). This filing reconciled the recovery of stranded generation costs for calendar year 2002 and included the renegotiated purchased power contract related to the Vermont Yankee nuclear unit. Proceedings in this docket are expected to begin in the second half of 2003. B. Long-Term Contractual Arrangements (Select Energy) Select Energy maintains long-term agreements to purchase energy in the normal course of business as part of its portfolio of resources to meet its actual or expected sales commitments. The aggregate amount of these purchase contracts was $5.3 billion at March 31, 2003 as follows (millions of dollars): --------------------------------------------------------------------- Year --------------------------------------------------------------------- 2003 $3,121.0 2004 1,227.2 2005 505.5 2006 250.7 2007 210.1 --------------------------------------------------------------------- Total $5,314.5 --------------------------------------------------------------------- Select Energy's purchase contract amounts can exceed the amount expected to be reported in fuel, purchased and net interchange power because energy trading purchases are classified net in revenues. 5. COMPREHENSIVE INCOME (NU, CL&P, PSNH, WMECO) Total comprehensive income, which includes all comprehensive income items, for NU is as follows: -------------------------------------------------------------------------- Three Months Ended March 31, -------------------------------------------------------------------------- (Millions of Dollars) 2003 2002 -------------------------------------------------------------------------- NU consolidated $56.4 $47.7 CL&P 25.8 20.4 PSNH 11.5 11.2 WMECO 6.2 6.9 -------------------------------------------------------------------------- Accumulated other comprehensive income fair value adjustments of NU's qualified cash flow hedging instruments are as follows: -------------------------------------------------------------------------- March 31, December 31, (Millions of Dollars, Net of Tax) 2003 2002 -------------------------------------------------------------------------- Balance at beginning of period $15.5 $(36.9) -------------------------------------------------------------------------- Hedged transactions recognized into earnings (5.1) 17.0 Change in fair value 4.3 29.2 Cash flow transactions entered into for the period (2.9) 6.2 -------------------------------------------------------------------------- Net change associated with the current period hedging transactions (3.7) 52.4 -------------------------------------------------------------------------- Total fair value adjustments included in accumulated other comprehensive income $11.8 $ 15.5 -------------------------------------------------------------------------- Accumulated other comprehensive income items unrelated to NU's qualified cash flow hedging instruments totaled $0.7 million in losses and $0.6 million in losses at March 31, 2003 and December 31, 2002, respectively. These amounts relate to unrealized losses on investments in marketable debt and equity instruments. 6. EARNINGS PER SHARE (NU) EPS is computed based upon the weighted average number of common shares outstanding during each period. Diluted EPS is computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect if certain securities are converted into common stock. The following table sets forth the components of basic and fully diluted EPS: -------------------------------------------------------------------------- (Millions of Dollars, Three Months Ended March 31, except share information) 2003 2002 -------------------------------------------------------------------------- Income before preferred dividends of subsidiaries $61.6 $20.0 Preferred dividends of subsidiaries 1.4 1.4 -------------------------------------------------------------------------- Net income $60.2 $18.6 -------------------------------------------------------------------------- Basic EPS common shares outstanding (average) 127,013,678 129,504,005 Dilutive effect of employee stock options 97,594 250,941 -------------------------------------------------------------------------- Fully diluted EPS common shares outstanding (average) 127,111,272 129,754,946 -------------------------------------------------------------------------- Basic and fully diluted EPS $0.47 $0.14 -------------------------------------------------------------------------- 7. SEGMENT INFORMATION (NU) NU is organized between the Utility Group and NU Enterprises based on the regulatory environment of each segment. The Utility Group segment, including both electric and gas utilities, represents approximately 72 percent and 81 percent of NU's total revenues for the three months ended March 31, 2003 and 2002, respectively, and primarily includes the operations of the electric utilities, CL&P, PSNH and WMECO, whose complete financial statements are included in NU's combined report on Form 10-Q. The Utility Group - gas segment includes the operations of Yankee Gas. Utility Group revenues from the sale of electricity and natural gas primarily are derived from residential, commercial and industrial customers and are not dependent on any single customer. On January 1, 2000, Select Energy began serving one half of CL&P's standard offer load for a four-year period ending December 31, 2003, at fixed prices. Total Select Energy revenues from CL&P for CL&P's standard offer load and for other transactions with CL&P, represented approximately $177 million or 26 percent in the first quarter of 2003 and approximately $158 million or 39 percent in the first quarter of 2002, of total NU Enterprises' revenues. Total CL&P purchases from NU Enterprises are eliminated in consolidation. Select Energy also provides basic generation service in the New Jersey market. Select Energy revenues related to these contracts represented $110.3 million or 16 percent of total NU Enterprises' revenues for the first quarter of 2003. Additionally, WMECO's purchases from Select Energy represented approximately $39 million and $1 million of total NU Enterprises' revenues in the first quarters of 2003 and 2002, respectively. No other individual customer represented in excess of 10 percent of NU Enterprises' revenues for the first quarter of 2003 or 2002. The NU Enterprises segment includes the operations of Select Energy, a corporation engaged in the trading, marketing, transportation, storage, and sale of energy commodities, in both wholesale and retail markets, in designated geographical areas; NGC, a corporation that acquires and manages generation facilities; SESI, a provider of energy management, demand-side management and related consulting services for commercial, industrial and institutional electric companies and electric utility companies; NGS, a corporation that maintains and services fossil or hydroelectric facilities and provides third-party electrical, mechanical, and engineering contracting services; HWP, a company engaged in the production of electric power and Woods Network. Eliminations and other in the following table includes the results for Mode 1 Communications, Inc., an investor in a fiber-optic communications network, the results of the nonenergy-related subsidiaries of Yankee and the company's investment in Acumentrics Corporation. Interest expense included in eliminations and other primarily relates to the debt of NU parent. Inter-segment eliminations of revenues and expenses are also included in eliminations and other. - ------------------------------------------------------------------------------- For the Three Months Ended March 31, 2003 - ------------------------------------------------------------------------------- Utility Group Eliminations (Millions of --------------- NU and Dollars) Electric Gas Enterprises Other Total - ------------------------------------------------------------------------------- Operating revenues $1,065.4 $152.2 $ 689.8 $(219.0) $ 1,688.4 Depreciation and amortization (134.9) (5.7) (4.8) (0.6) (146.0) Other operating expenses (815.3) (116.2) (664.9) 218.0 (1,378.4) - ------------------------------------------------------------------------------- Operating income/(loss) 115.2 30.3 20.1 (1.6) 164.0 Interest expense, net (43.6) (3.2) (11.2) (5.5) (63.5) Other (loss)/ income, net (0.3) (0.5) 0.6 0.8 0.6 Income tax (expense)/ benefit (27.4) (10.9) (4.3) 3.1 (39.5) Preferred dividends (1.4) - - - (1.4) - ------------------------------------------------------------------------------- Net income/ (loss) $ 42.5 $ 15.7 $ 5.2 $ (3.2) $ 60.2 - ------------------------------------------------------------------------------- Total assets $7,369.9 $965.7 $2,056.0 $(118.4) $10,273.2 - ------------------------------------------------------------------------------- Total investments in plant $ 83.0 $ 9.1 $ 5.3 $ 0.6 $ 98.0 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- For the Three Months Ended March 31, 2002 - ------------------------------------------------------------------------------- Utility Group Eliminations (Millions of --------------- NU and Dollars) Electric Gas Enterprises Other Total - ------------------------------------------------------------------------------- Operating revenues $ 940.6 $104.3 $ 401.9 $(162.3) $ 1,284.5 Depreciation and amortization (104.7) (6.6) (6.8) (0.5) (118.6) Other operating expenses (722.4) (72.6) (415.2) 158.6 (1,051.6) - ------------------------------------------------------------------------------- Operating income/(loss) 113.5 25.1 (20.1) (4.2) 114.3 Interest expense, net (47.8) (3.8) (11.1) (4.2) (66.9) Other income/ (loss), net 3.0 (0.5) (0.9) (15.6) (14.0) Income tax (expense)/ benefit (27.7) (8.3) 12.0 10.6 (13.4) Preferred dividends (1.4) - - - (1.4) - ------------------------------------------------------------------------------- Net income/ (loss) $ 39.6 $ 12.5 $ (20.1) $ (13.4) $ 18.6 - ------------------------------------------------------------------------------- Total investments in plant $ 78.7 $ 8.4 $ 6.6 $ 3.7 $ 97.4 - ------------------------------------------------------------------------------- THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 ---------- ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash.................................................... $ 7,214 $ 159 Investments in securitizable assets..................... 155,759 178,908 Receivables, net........................................ 83,728 88,001 Accounts receivable from affiliated companies........... 72,276 51,060 Unbilled revenues....................................... 4,267 5,801 Notes receivable from affiliated companies.............. 30,200 1,900 Fuel, materials and supplies, at average cost........... 32,519 32,379 Prepayments and other................................... 24,681 19,407 ---------- ---------- 410,644 377,615 ---------- ---------- Property, Plant and Equipment: Electric utility........................................ 3,191,844 3,139,128 Less: Accumulated depreciation....................... 1,130,343 1,113,991 ---------- ---------- 2,061,501 2,025,137 Construction work in progress........................... 151,526 153,556 ---------- ---------- 2,213,027 2,178,693 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets....................................... 1,674,132 1,702,677 Prepaid pension......................................... 283,023 276,173 Other .................................................. 90,896 96,925 ---------- ---------- 2,048,051 2,075,775 ---------- ---------- Total Assets.............................................. $4,671,722 $4,632,083 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 ---------- ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Accounts payable....................................... $ 152,571 $ 174,890 Accounts payable to affiliated companies............... 142,493 117,904 Accrued taxes.......................................... 55,619 34,350 Accrued interest....................................... 10,008 10,077 Other.................................................. 40,578 48,495 ---------- ---------- 401,269 385,716 ---------- ---------- Rate Reduction Bonds..................................... 1,213,541 1,245,728 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes...................... 741,845 756,461 Accumulated deferred investment tax credits............ 92,777 93,408 Deferred contractual obligations....................... 229,456 234,537 Other.................................................. 336,760 276,325 ---------- ---------- 1,400,838 1,360,731 ---------- ---------- Capitalization: Long-Term Debt......................................... 828,518 827,866 ---------- ---------- Preferred Stock - Nonredeemable........................ 116,200 116,200 ---------- ---------- Common Stockholder's Equity: Common stock, $10 par value - authorized 24,500,000 shares; 6,035,205 shares outstanding in 2003 and 2002.................................... 60,352 60,352 Capital surplus, paid in............................. 327,062 327,299 Retained earnings.................................... 323,868 308,554 Accumulated other comprehensive income/(loss)........ 74 (363) ---------- ---------- Common Stockholder's Equity............................ 711,356 695,842 ---------- ---------- Total Capitalization..................................... 1,656,074 1,639,908 ---------- ---------- Commitments and Contingencies (Note 4) Total Liabilities and Capitalization..................... $4,671,722 $4,632,083 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, ---------------------------- 2003 2002 -------------- ------------- (Thousands of Dollars) Operating Revenues........................................... $705,916 $604,420 -------- -------- Operating Expenses: Operation - Fuel, purchased and net interchange power............... 420,205 358,700 Other................................................... 75,839 70,212 Maintenance................................................ 11,178 14,524 Depreciation............................................... 25,416 23,296 Amortization of regulatory assets, net..................... 27,343 (3,031) Amortization of rate reduction bonds....................... 27,486 28,070 Taxes other than income taxes.............................. 49,362 48,538 -------- -------- Total operating expenses................................. 636,829 540,309 -------- -------- Operating Income............................................. 69,087 64,111 Interest Expense: Interest on long-term debt................................. 10,112 10,751 Interest on rate reduction bonds........................... 18,144 19,411 Other interest............................................. 403 247 -------- -------- Interest expense, net.................................... 28,659 30,409 -------- -------- Other Income, Net............................................ 744 3,479 -------- -------- Income Before Income Tax Expense............................. 41,172 37,181 Income Tax Expense........................................... 14,450 15,497 -------- -------- Net Income................................................... $ 26,722 $ 21,684 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------ 2003 2002 ------------- ------------- (Thousands of Dollars) Operating Activities: Net income................................................................ $ 26,722 $ 21,684 Adjustments to reconcile to net cash flows provided by operating activities: Depreciation............................................................ 25,416 23,296 Deferred income taxes and investment tax credits, net................... (21,708) (11,196) Net (deferral)/amortization of recoverable energy costs................. (6,116) 7,558 Amortization of regulatory assets, net.................................. 54,829 25,039 Prepaid pension......................................................... (6,850) (13,225) Net other sources of cash............................................... 46,386 29,013 Changes in working capital: Receivables and unbilled revenues, net.................................. (15,409) 3,347 Fuel, materials and supplies............................................ (140) (1,278) Accounts payable........................................................ 2,270 (16,731) Accrued taxes........................................................... 21,269 1,896 Investments in securitizable assets..................................... 23,149 (3,967) Other working capital (excludes cash)................................... (12,844) 16,501 ---------- ---------- Net cash flows provided by operating activities............................. 136,974 81,937 ---------- ---------- Investing Activities: Investments in plant...................................................... (56,976) (45,935) NU system Money Pool (lending)/borrowing.................................. (28,300) 35,850 Other investment activities, net.......................................... (900) (53,842) ---------- ---------- Net cash flows used in investing activities................................. (86,176) (63,927) ---------- ---------- Financing Activities: Retirement of rate reduction bonds........................................ (32,187) - Cash dividends on preferred stock......................................... (1,390) (1,390) Cash dividends on common stock............................................ (10,018) (15,017) Other financing activities, net........................................... (148) (130) ---------- ---------- Net cash flows used in financing activities................................. (43,743) (16,537) ---------- ---------- Net increase in cash........................................................ 7,055 1,473 Cash - beginning of period.................................................. 159 773 ---------- ---------- Cash - end of period........................................................ $ 7,214 $ 2,246 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations CL&P is a wholly owned subsidiary of NU. This discussion should be read in conjunction with NU's management's discussion and analysis of financial condition and results of operations, consolidated financial statements and footnotes in this Form 10-Q and the NU 2002 Form 10-K. RESULTS OF OPERATIONS The components of significant income statement variances for the first quarter of 2003 are provided in the table below. Income Statement Variances (Millions of Dollars) 2003 over/(under) 2002 ---------------------- Amount Percent ------ ------- Operating Revenues $101 17% Operating Expenses: Fuel, purchased and net interchange power 61 17 Other operation 5 8 Maintenance (3) (23) Depreciation 2 9 Amortization of regulatory assets, net 30 (a) Amortization of rate reduction bonds - - Taxes other than income taxes 1 2 ---- ---- Total operating expenses 96 18 ---- ---- Operating income 5 8 ---- ---- Interest expense, net (2) (6) Other income, net (3) (79) ---- ---- Income before income tax expense 4 11 Income tax expense (1) (7) ---- ---- Net income $ 5 23% ==== ==== (a) Percent greater than 100. Operating Revenues Operating revenues increased by $101 million or 17 percent in the first quarter of 2003, primarily due to higher wholesale revenues ($54 million) and higher retail revenues ($47 million). Wholesale revenues were higher primarily due to higher market prices in 2003. Retail revenues increased primarily due to higher retail sales. Retail kilowatt-hour sales increased by 9.1 percent in 2003, of which 5.3 percent was related to weather. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased in the first quarter of 2003, primarily due to higher standard offer purchases and purchased-power costs required to meet the load requirements from the increased retail sales. Other Operation and Maintenance Other O&M expenses increased by $2 million in the first quarter of 2003, primarily due to higher administrative and general expenses resulting from a lower pension income offset to expense ($5 million) and higher transmission and distribution expenses ($5 million), partially offset by lower related nuclear expenses ($8 million) as a result of the final DPUC order regarding the CL&P Millstone use of proceeds docket. Depreciation Depreciation expense increased in the first quarter of 2003, primarily due to higher utility plant balances in 2003 resulting from plant additions. Amortization Amortization increased in the first quarter of 2003, primarily due to higher amortization related to the recovery of stranded costs ($43 million), partially offset by lower amortization of the nuclear investment ($14 million). Taxes Other Than Income Taxes Taxes other than income taxes increased in the first quarter of 2003, primarily due to higher gross earnings tax due to higher sales. Interest Expense, Net Interest expense, net decreased in the first quarter of 2003, primarily due to lower interest on rate reduction bonds. Other Income, Net Other income, net decreased in the first quarter of 2003, primarily due to lower miscellaneous non-operating income ($1 million), lower interest and dividend income ($1 million), and higher charitable donations made in 2003 ($1 million). Income Tax Expense Income tax expense decreased in the first quarter of 2003, primarily due to a reduction in flow through depreciation, and an increase in state tax credits. LIQUIDITY In addition to its revolving credit arrangement, CL&P can access up to $100 million by selling certain of its accounts receivable. At March 31, 2003, CL&P had $60 million of accounts receivable sold under this arrangement. At December 31, 2002, $40 million of accounts receivable were sold. These amounts are not reflected as obligations on the accompanying consolidated balance sheets. CL&P has withdrawn its application before the DPUC to fund approximately $200 million of spent nuclear fuel obligations. CL&P's net cash flows provided by operating activities increased to $137 million in the first quarter of 2003, compared with $81.9 million during the first quarter of 2002. Cash flows provided by operating activities increased primarily due to the increase in the amortization of regulatory assets related to the recovery of stranded costs and changes in working capital items. Financing activities decreased with the level of common dividends totaling $10 million in the first quarter of 2003 compared to $15 million in the first quarter of 2002. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 ---------- ------------- (Thousands of Dollars) ASSETS - ------ Current Assets: Cash...................................................... $ 4,425 $ 5,319 Receivables, net.......................................... 70,167 68,204 Accounts receivable from affiliated companies............. 13,326 9,667 Unbilled revenues......................................... 29,821 32,004 Notes receivable from affiliated companies................ 3,300 23,000 Fuel, materials and supplies, at average cost............. 53,098 49,182 Prepayments and other..................................... 4,035 10,032 ---------- ---------- 178,172 197,408 ---------- ---------- Property, Plant and Equipment: Electric utility.......................................... 1,445,749 1,431,774 Other..................................................... 6,194 6,195 ---------- ---------- 1,451,943 1,437,969 Less: Accumulated depreciation......................... 722,747 715,800 ---------- ---------- 729,196 722,169 Construction work in progress............................. 55,074 50,547 ---------- ---------- 784,270 772,716 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets......................................... 832,361 859,871 Other .................................................... 83,218 92,280 ---------- ---------- 915,579 952,151 ---------- ---------- Total Assets................................................ $1,878,021 $1,922,275 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 ---------- ------------- (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Notes payable to banks................................... $ 15,000 $ - Obligations under capital leases - current portion....... 215 206 Accounts payable......................................... 47,208 54,588 Accounts payable to affiliated companies................. 8,235 4,008 Accrued taxes............................................ 15,145 65,317 Accrued interest......................................... 14,571 11,333 Unremitted rate reduction bond collections............... 20,742 25,555 Other.................................................... 14,809 12,468 ---------- ----------- 135,925 173,475 ---------- ----------- Rate Reduction Bonds....................................... 502,650 510,841 ---------- ----------- Obligations Under Capital Leases........................... 929 986 ---------- ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes........................ 351,413 359,910 Accumulated deferred investment tax credits.............. 2,534 2,680 Deferred contractual obligations......................... 54,958 56,165 Accrued pension.......................................... 39,708 37,933 Other.................................................... 49,458 51,170 ---------- ----------- 498,071 507,858 ---------- ----------- Capitalization: Long-Term Debt........................................... 407,285 407,285 ---------- ----------- Common Stockholder's Equity: Common stock, $1 par value - authorized 100,000,000 shares; 301 shares outstanding in 2003 and 2002...................................... - - Capital surplus, paid in............................... 126,811 126,937 Retained earnings...................................... 205,825 194,998 Accumulated other comprehensive income/(loss).......... 525 (105) ---------- ----------- Common Stockholder's Equity.............................. 333,161 321,830 ---------- ----------- Total Capitalization....................................... 740,446 729,115 ---------- ----------- Commitments and Contingencies (Note 4) Total Liabilities and Capitalization....................... $1,878,021 $ 1,922,275 ========== =========== The accompanying notes are an integral part of these consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, --------------------------- 2003 2002 --------------------------- (Thousands of Dollars) Operating Revenues.......................................... $256,895 $242,381 -------- -------- Operating Expenses: Operation - Fuel, purchased and net interchange power.............. 137,065 119,339 Other.................................................. 28,906 29,992 Maintenance............................................... 13,445 12,901 Depreciation.............................................. 10,607 10,069 Amortization of regulatory assets, net.................... 17,570 14,592 Amortization of rate reduction bonds...................... 9,246 15,495 Taxes other than income taxes............................. 8,673 9,243 -------- -------- Total operating expenses................................ 225,512 211,631 -------- -------- Operating Income............................................ 31,383 30,750 Interest Expense: Interest on long-term debt................................ 3,847 4,847 Interest on rate reduction bonds.......................... 7,410 7,702 Other interest............................................ 247 182 -------- -------- Interest expense, net................................... 11,504 12,731 -------- -------- Other (Loss)/Income, Net.................................... (1,211) 97 -------- -------- Income Before Income Tax Expense............................ 18,668 18,116 Income Tax Expense.......................................... 7,841 6,387 -------- -------- Net Income.................................................. $ 10,827 $ 11,729 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------ 2003 2002 ------------- ------------- (Thousands of Dollars) Operating activities: Net Income.......................................................... $ 10,827 $ 11,729 Adjustments to reconcile to net cash flows (used in)/provided by operating activities: Depreciation...................................................... 10,607 10,069 Deferred income taxes and investment tax credits, net............. (8,256) (11,119) Net amortization of recoverable energy costs...................... 5,847 5,548 Amortization of regulatory assets, net............................ 26,816 30,087 Net other uses of cash............................................ (1,783) (14,700) Changes in working capital: Receivables and unbilled revenues, net............................ (3,439) (2,121) Fuel, materials and supplies...................................... (3,916) 1,411 Accounts payable.................................................. (3,152) 20,719 Accrued taxes..................................................... (50,172) 18,616 Other working capital (excludes cash)............................. 7,394 14,828 -------- -------- Net cash flows (used in)/provided by operating activities............. (9,227) 85,067 -------- -------- Investing Activities: Investments in plant................................................ (21,621) (27,150) NU system Money Pool borrowing/(lending)............................ 19,700 (30,400) Other investment activities, net.................................... 3,493 (4,002) -------- -------- Net cash flows provided by/(used in) investing activities............. 1,572 (61,552) -------- -------- Financing Activities: Issuance of rate reduction bonds.................................... - 50,000 Retirement of rate reduction bonds.................................. (8,191) (13,795) Net increase/(decrease) in short-term debt.......................... 15,000 (45,500) Cash dividends on common stock...................................... - (16,750) Other financing activities, net..................................... (48) 3,354 -------- -------- Net cash flows provided by/(used in) financing activities............. 6,761 (22,691) -------- -------- Net (decrease)/increase in cash....................................... (894) 824 Cash - beginning of period............................................ 5,319 1,479 -------- -------- Cash - end of period.................................................. $ 4,425 $ 2,303 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations PSNH is a wholly owned subsidiary of NU. This discussion should be read in conjunction with NU's management's discussion and analysis of financial condition and results of operations, consolidated financial statements and footnotes in this Form 10-Q and the NU 2002 Form 10-K. RESULTS OF OPERATIONS The components of significant income statement variances for the first quarter of 2003 are provided in the table below. Income Statement Variances (Millions of Dollars) 2003 over/(under) 2002 ---------------------- Amount Percent ------ ------- Operating Revenues $ 15 6% Operating Expenses: Fuel, purchased and net interchange power 18 15 Other operation (1) (4) Maintenance 1 4 Depreciation - - Amortization of regulatory assets, net 3 20 Amortization of rate reduction bonds (6) (40) Taxes other than income taxes (1) (6) ---- ---- Total operating expenses 14 7 ---- ---- Operating income 1 2 ---- ---- Interest expense, net (1) (10) Other income, net (1) (a) ---- ---- Income before income tax expense 1 3 Income tax expense 2 23 ---- ---- Net income $ (1) (8)% ==== ==== (a) Percent greater than 100. Operating Revenues Total revenues increased by $15 million or 6 percent in the first quarter of 2003, as compared to the same period of 2002, primarily due to higher retail revenue ($19 million), partially offset by lower wholesale revenue ($5 million). Retail revenue increased primarily due to higher retail sales. Retail kilowatt-hour sales increased by 8.1 percent in 2003, of which 4.7 percent was related to the weather. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power increased primarily as result of the increase in retail sales due to the colder weather and increased fuel prices in 2003. Amortization Amortization decreased primarily due to the scheduled amortization of principle for the rate reduction bonds, partially offset by the increased recovery of stranded costs. Taxes Other Than Income Taxes Taxes other than income taxes decreased primarily due to lower property tax. Interest Expense, Net Interest expense, net decreased in 2003 primarily due to lower interest costs associated with the refinancing of the pollution control revenue bonds. Other Income, Net Other income, net is lower primarily due to lower income associated with the sale of property. Income Tax Expense Income tax expense increased primarily due to higher book taxable income. LIQUIDITY PSNH's net cash flows used in operating activities totaled $9.2 million in the first quarter of 2003, compared with net cash flows provided by operating activities of $85 million during the first quarter of 2002. Cash flows used in operating activities decreased primarily due to the changes in working capital items, primarily the payment of taxes on the gain on the sale of Seabrook. There was a lower level of investing activities in the first quarter of 2003, as compared with the first quarter of 2002, primarily due to borrowings from the NU system Money Pool and a reduction in investments in plant for the first quarter of 2003. There was also a lower level of financing activities in the first quarter of 2003 primarily due to an increase in short-term debt. At March 31, 2003, PSNH had $15 million borrowed under the Utility Group's $300 million revolving credit agreement. This credit line matures in November 2003. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 ------------- ------------- (Thousands of Dollars) ASSETS - ------ Current Assets: Cash........................................................ $ 1 $ 123 Receivables, net............................................ 41,998 42,203 Accounts receivable from affiliated companies............... 27 6,369 Unbilled revenues........................................... 11,233 8,944 Fuel, materials and supplies, at average cost............... 2,360 1,821 Prepayments and other....................................... 1,308 1,470 ----------- ----------- 56,927 60,930 ----------- ----------- Property, Plant and Equipment: Electric utility............................................ 593,193 590,153 Less: Accumulated depreciation........................... 197,980 195,804 ----------- ----------- 395,213 394,349 Construction work in progress............................... 11,816 11,860 ----------- ----------- 407,029 406,209 ----------- ----------- Deferred Debits and Other Assets: Regulatory assets........................................... 269,656 283,702 Prepaid pension............................................. 69,191 67,516 Other ...................................................... 19,578 18,304 ----------- ----------- 358,425 369,522 ----------- ----------- Total Assets.................................................. $ 822,381 $ 836,661 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2003 2002 ----------- ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Notes payable to banks................................... $ 10,000 $ 7,000 Notes payable to affiliated companies.................... 69,200 85,900 Accounts payable......................................... 16,050 17,730 Accounts payable to affiliated companies................. 11,275 6,233 Accrued taxes............................................ 7,110 4,334 Accrued interest......................................... 1,234 2,059 Other.................................................... 9,318 8,005 ---------- ---------- 124,187 131,261 ---------- ---------- Rate Reduction Bonds....................................... 140,220 142,742 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes........................ 217,190 222,065 Accumulated deferred investment tax credits.............. 3,578 3,662 Deferred contractual obligations......................... 62,416 63,767 Other.................................................... 12,561 13,213 ---------- ---------- 295,745 302,707 ---------- ---------- Capitalization: Long-Term Debt........................................... 102,143 101,991 ---------- ---------- Common Stockholder's Equity: Common stock, $25 par value - authorized 1,072,471 shares; 434,653 shares outstanding in 2003 and 2002...................................... 10,866 10,866 Capital surplus, paid in............................... 69,656 69,712 Retained earnings...................................... 79,541 77,476 Accumulated other comprehensive income/(loss).......... 23 (94) ---------- ---------- Common Stockholder's Equity.............................. 160,086 157,960 ---------- ---------- Total Capitalization....................................... 262,229 259,951 ---------- ---------- Commitments and Contingencies (Note 4) Total Liabilities and Capitalization....................... $ 822,381 $ 836,661 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, ------------------------- 2003 2002 ------------------------- (Thousands of Dollars) Operating Revenues......................................... $104,786 $ 96,005 -------- -------- Operating Expenses: Operation - Fuel, purchased and net interchange power............. 53,003 50,200 Other................................................. 13,770 10,564 Maintenance.............................................. 3,134 2,918 Depreciation............................................. 3,471 3,189 Amortization of regulatory assets, net................... 11,273 7,904 Amortization of rate reduction bonds..................... 2,469 2,595 Taxes other than income taxes............................ 2,972 2,940 -------- -------- Total operating expenses........................... 90,092 80,310 -------- -------- Operating Income........................................... 14,694 15,695 Interest Expense: Interest on long-term debt............................... 792 765 Interest on rate reduction bonds......................... 2,308 2,449 Other interest........................................... 376 358 -------- -------- Interest expense, net................................. 3,476 3,572 -------- -------- Other Loss, Net............................................ (5) (556) -------- -------- Income Before Income Tax Expense........................... 11,213 11,567 Income Tax Expense......................................... 5,145 4,677 -------- -------- Net Income................................................. $ 6,068 $ 6,890 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------- 2003 2002 ------------- ------------ (Thousands of Dollars) Operating Activities: Net income.......................................................... $ 6,068 $ 6,890 Adjustments to reconcile to net cash flows provided by operating activities: Depreciation...................................................... 3,471 3,189 Deferred income taxes and investment tax credits, net............. (3,795) (3,153) Net amortization of recoverable energy costs...................... 149 722 Amortization of regulatory assets, net............................ 13,742 10,499 Prepaid pension................................................... (1,675) (3,025) Net other uses of cash............................................ (3,596) (1,953) Changes in working capital: Receivables and unbilled revenues, net............................ 4,258 6,505 Fuel, materials and supplies...................................... (538) (36) Accounts payable.................................................. 3,362 (22,644) Accrued taxes..................................................... 2,776 9,212 Other working capital (excludes cash)............................. 765 1,087 ---------- ---------- Net cash flows provided by operating activities....................... 24,987 7,293 ---------- ---------- Investing Activities: Investments in plant................................................ (4,395) (4,702) NU system Money Pool (lending)/borrowing............................ (16,700) 18,700 Other investment activities, net.................................... (482) 620 ---------- ---------- Net cash flows (used in)/provided by investing activities............. (21,577) 14,618 ---------- ---------- Financing Activities: Retirement of rate reduction bonds.................................. (2,522) (2,748) Net increase/(decrease) in short-term debt.......................... 3,000 (15,000) Cash dividends on common stock...................................... (4,003) (4,001) Other financing activities, net..................................... (7) (6) ---------- ---------- Net cash flows used in financing activities........................... (3,532) (21,755) ---------- ---------- Net (decrease)/increase in cash....................................... (122) 156 Cash - beginning of period............................................ 123 599 ---------- ---------- Cash - end of period.................................................. $ 1 $ 755 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY Management's Discussion and Analysis of Financial Condition and Results of Operations WMECO is a wholly owned subsidiary of NU. This discussion should be read in conjunction with NU's management's discussion and analysis of financial condition and results of operations, consolidated financial statements and footnotes in this Form 10-Q and the NU 2002 Form 10-K. RESULTS OF OPERATIONS The components of significant income statement variances for the first quarter of 2003 are provided in the table below. Income Statement Variances (Millions of Dollars) 2003 over/(under) 2002 ---------------------- Amount Percent ------ ------- Operating Revenues $ 9 9% Operating Expenses: Fuel, purchased and net interchange power 3 6 Other operation 3 30 Maintenance - - Depreciation - - Amortization of regulatory assets, net 4 43 Amortization of rate reduction bonds - - Taxes other than income taxes - - ---- ---- Total operating expenses 10 12 ---- ---- Operating income (1) (6) ---- ---- Interest expense, net - - Other income, net - - ---- ---- Income before income tax expense - - Income tax expense - - ---- ---- Net income $ (1) (12)% ==== ==== Operating Revenues Total revenues increased by $9 million or 9 percent in the first quarter of 2003, compared with the same period in 2002, due to higher wholesale revenues ($5 million), and higher retail revenues ($4 million). Wholesale revenues were higher primarily due to higher market prices in 2003. Retail revenues were higher primarily due to higher retail sales. Retail sales increased by 9.2 percent, of which 4.9 percent was related to the colder weather. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased by $3 million or 6 percent in the first quarter of 2003, primarily due to higher standard offer purchases as a result of the retail sales increases. Other Operation Other operation expenses increased $3 million in the first quarter of 2003, due to higher administration and general expenses primarily resulting from lower pension income ($2 million) and higher transmission expense ($1 million). Amortization Amortization increased in 2003, primarily due to higher amortization related to the recovery of stranded costs. LIQUIDITY WMECO's net cash flows provided by operating activities increased to $25 million in the first quarter of 2003, compared with $7.3 million during the first quarter of 2002. Cash flows provided by operating activities increased primarily due to changes in accounts payable, offset by changes in accrued taxes. Financing activities decreased with the level of common dividends totaling $4 million in the first quarters of 2003 and 2002. At March 31, 2003, WMECO had $10 million borrowed under the Utility Group's $300 million revolving credit agreement. This credit line matures in November 2003. WMECO has an application pending with the DTE to issue $100 million of unsecured long-term debt to fund its spent nuclear fuel obligations and to reduce short-term borrowings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The quantitative and qualitative disclosures about market risk are set forth in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," Note 2B, "Derivative Instruments, Market Risk and Risk Management - Market Risk Information," and Note 2C, "Derivative Instruments, Market Risk and Risk Management - Other Risk Management Activities," to the consolidated financial statements herein. ITEM 4. CONTROLS AND PROCEDURES NU, CL&P, PSNH and WMECO (collectively, the companies) evaluated the design and operation of their disclosure controls and procedures to determine whether they are effective in ensuring that the disclosure of required information is timely made in accordance with the Exchange Act and the rules and forms of the Securities and Exchange Commission (SEC). These evaluations were made under the supervision and with the participation of management, including the companies' principal executive officer and principal financial officer, within the 90-day period prior to the filing of this Quarterly Report on Form 10-Q. The principal executive officer and principal financial officer have concluded, based on their review, that the companies' disclosure controls and procedures, as defined by Exchange Act Rules 13a-14(c) and 15(d)- 14(c), are effective to ensure that information required to be disclosed by the companies in reports that it files under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. No significant changes were made to the companies' internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1. NRG Energy, Inc. (NRG) - Credit Rating Status Recent changes in the credit status of NRG have impacted the contractual relationships between NRG and CL&P, Yankee Gas and Select Energy. On July 26 and 29, 2002, the three major ratings agencies lowered the ratings of NRG to below investment grade. Concurrently, the potential, but now postponed, deactivation of NRG owned generating units in the state of Connecticut further called into question NRG's financial viability and the long term availability of power to serve CL&P's standard offer customers. On September 16, 2002, NRG announced its failure to meet a September 13, 2002 deadline by which it was to post collateral in excess of $1 billion and that it had not made payments on certain debt issues due on September 16, 2002. On November 22, 2002, an involuntary bankruptcy case was filed against NRG by seven former NRG executives. A settlement has been reached between NRG and the former executives and was scheduled for hearing on March 27, 2003. On March 20, 2003, CL&P filed an objection to dismissal of the involuntary case, which objection has subsequently been withdrawn. On April 10, 2003, the hearing originally scheduled for March 20, 2003 was held. The case is still pending. For further information on NRG related matters, see "Part I, Item 1 - Business - Rates and Electric Industry Restructuring - Connecticut," and Part I, Item 3 - Legal Proceedings," in NU's 2002 annual report on Form 10-K. CL&P - Station Service Matter CL&P has filed a petition for declaratory ruling with the DPUC seeking confirmation that under State law and regulation, station service has properly been billed to NRG and remains due and owing. In exchange for withdrawal of CL&P's objection to the dismissal of NRG's involuntary bankruptcy case, NRG has placed $4.2 million in an escrow account pending resolution of the station service issue. NRG has moved for dismissal of the DPUC petition. CL&P will be opposing NRG's motion. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits (NU) Exhibit No. Description ----------- ----------- 10.42.6 Amendment to Forsgren Employee Agreement, dated as of April 1, 2003 10.45.6 Amendment to Grise Employment Agreement, dated as of April 1, 2003 15 Deloitte & Touche LLP Letter Regarding Unaudited Financial Information 99.1 Certification of Michael G. Morris, Chairman, President and Chief Executive Officer of Northeast Utilities and John H. Forsgren, Vice Chairman, Executive Vice President and Chief Financial Officer of Northeast Utilities, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 9, 2003 (a) Listing of Exhibits (CL&P) 99.1 Certification of Cheryl W. Grise, Chief Executive Officer of The Connecticut Light and Power Company (the registrant) and John H. Forsgren, Executive Vice President and Chief Financial Officer of the registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 9, 2003 (a) Listing of Exhibits (PSNH) 99.1 Certification of Cheryl W. Grise, Chief Executive Officer of Public Service Company of New Hampshire (the registrant) and John H. Forsgren, Executive Vice President and Chief Financial Officer of the registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 9, 2003 (a) Listing of Exhibits (WMECO) 99.1 Certification of Cheryl W. Grise, Chief Executive Officer of Western Massachusetts Electric Company (the registrant) and John H. Forsgren, Executive Vice President and Chief Financial Officer of the registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 9, 2003 (b) Reports on Form 8-K: NU filed a current report on Form 8-K dated January 28, 2003, disclosing: o NU's earnings press release for the fourth quarter and full year 2002. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NORTHEAST UTILITIES ------------------- Registrant Date: May 9, 2003 By /s/ John H. Forsgren ----------- ---------------------------------- John H. Forsgren Vice Chairman, Executive Vice President and Chief Financial Officer (for the Registrant and as Principal Financial Officer) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael G. Morris, Chairman, President and Chief Executive Officer of Northeast Utilities (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ Michael G. Morris (Signature) Michael G. Morris Chairman, President and Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H. Forsgren, Vice Chairman, Executive Vice President and Chief Financial Officer of Northeast Utilities (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ John H. Forsgren (Signature) John H. Forsgren Vice Chairman, Executive Vice President and Chief Financial Officer SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE CONNECTICUT LIGHT AND POWER COMPANY --------------------------------------- Registrant Date: May 9, 2003 By /s/ John H. Forsgren ----------- ---------------------------------- John H. Forsgren Vice Chairman, Executive Vice President and Chief Financial Officer (for the Registrant and as Principal Financial Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Cheryl W. Grise, Chief Executive Officer of The Connecticut Light and Power Company (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ Cheryl W. Grise (Signature) Cheryl W. Grise Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H. Forsgren, Executive Vice President and Chief Financial Officer of The Connecticut Light and Power Company (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ John H. Forsgren (Signature) John H. Forsgren Executive Vice President and Chief Financial Officer SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE --------------------------------------- Registrant Date: May 9, 2003 By /s/ John H. Forsgren ----------- ------------------------------ John H. Forsgren Executive Vice President and Chief Financial Officer (for the Registrant and as Principal Financial Officer) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Cheryl W. Grise, Chief Executive Officer of Public Service Company of New Hampshire (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ Cheryl W. Grise (Signature) Cheryl W. Grise Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H. Forsgren, Executive Vice President and Chief Financial Officer of Public Service Company of New Hampshire (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ John H. Forsgren (Signature) John H. Forsgren Executive Vice President and Chief Financial Officer SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WESTERN MASSACHUSETTS ELECTRIC COMPANY -------------------------------------- Registrant Date: May 9, 2003 By /s/ John H. Forsgren ----------- ---------------------------------- John H. Forsgren Vice Chairman, Executive Vice President and Chief Financial Officer (for the Registrant and as Principal Financial Officer) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Cheryl W. Grise, Chief Executive Officer of Western Massachusetts Electric Company (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ Cheryl W. Grise (Signature) Cheryl W. Grise Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H. Forsgren, Executive Vice President and Chief Financial Officer of Western Massachusetts Electric Company (the registrant), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ John H. Forsgren (Signature) John H. Forsgren Executive Vice President and Chief Financial Officer EX-10.42.6 3 exh10426forsempl.txt FORSGREN EMPLOYMENT AGREEMENT Exhibit 10.42.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of April 1, 2003, by and between Northeast Utilities Service Company, a Connecticut corporation ("NUSCO"), with its principal office in Berlin, Connecticut, and John H. Forsgren, a resident of East Hartford, Connecticut ("Executive"). WHEREAS, Executive is currently employed as Executive Vice President, Vice Chairman and Chief Financial Officer of Northeast Utilities ("NU") and holds senior executive positions with certain of the subsidiaries of NU (NU and the Affiliates, as such term is defined in Section 6.1(a), of NU being referred to collectively herein as the "Company") and both parties desire to enter into an agreement superseding all prior employment agreements to reflect Executive's contribution to the Company's business in Executive's executive capacities and to provide for Executive's continued employment by the Company, upon the terms and conditions set forth herein: NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Employment. The Company hereby agrees to continue the employment of Executive, and Executive hereby accepts such employment and agrees to perform Executive's duties and responsibilities, in accordance with the terms, conditions and provisions hereinafter set forth. 1.1 Employment Term. The term of Executive's employment under this Agreement shall commence as of April 1, 2003 (the "Effective Date") and shall continue until March 31, 2004, unless sooner terminated in accordance with Section 5 or Section 6 hereof, and shall automatically renew for periods of one year unless one party gives written notice to the other, at least six months prior to March 31, 2004 or at least six months prior to the end of any one-year renewal period, that the Agreement shall not be further extended. The period commencing as of the Effective Date and ending on the date on which the term of Executive's employment under the Agreement shall terminate is hereinafter referred to as the "Employment Term". 1.2. Duties and Responsibilities. Executive shall serve in such senior positions as directed by NUSCO's Board of Directors (the "Board") or the Board of Trustees (the "Trustees") of NU that provide Executive with duties and compensation that are substantially equivalent to Executive's current position in terms of duties and responsibilities. During the Employment Term, Executive shall perform all duties and accept all responsibilities incident to such positions as may be assigned to Executive by the Board. 1.3. Extent of Service. During the Employment Term, Executive agrees to use Executive's best efforts to carry out Executive's duties and responsibilities under Section 1.2 hereof and, consistent with the other provisions of this Agreement, to devote substantially all Executive's business time, attention and energy thereto. Except as provided in Section 3 hereof, the foregoing shall not be construed as preventing Executive from making minority investments in other businesses or enterprises provided that Executive agrees not to become engaged in any other business activity which, in the reasonable judgment of the Board, is likely to interfere with Executive's ability to discharge Executive's duties and responsibilities to the Company. 1.4. Base Salary. For all the services rendered by Executive hereunder, NUSCO shall pay Executive a base salary ("Base Salary"), commencing on the Effective Date, at the annual rate then being paid to Executive by NUSCO payable in installments at such times as NUSCO customarily pays its other senior level executives (but in any event no less often than monthly). Executive's Base Salary shall be reviewed annually for appropriate adjustment (but shall not be reduced below that in effect on the Effective Date without Executive's written consent) by the Trustees pursuant to its normal performance review policies for senior level executives. Executive's annual Base Salary shall not be reduced below $570,000 without Executive's written consent. 1.5. Retirement and Benefit Coverages. During the Employment Term, Executive shall be entitled to participate in all (a) employee pension and retirement plans and programs ("Retirement Plans") and (b) welfare benefit plans and programs ("Benefit Coverages"), in each case made available to the Company's senior level executives as a group or to its employees generally, as such Retirement Plans or Benefit Coverages may be in effect from time to time, including, without limitation, the Company's Supplemental Executive Retirement Plan for Officers (the "Supplemental Plan"), both as to the Make-Whole Benefit and the Target Benefit. In addition to the retirement benefits to which Executive would otherwise be entitled upon retirement from the employ of the Company or a successor affiliate within the NU system (the "Employer"), under the Retirement Plan and under the existing Supplemental Plan, Executive will be entitled to two additional benefits that will be payable by the Employer: (1) For the first ten years of Executive's employment by the Employer, Executive will accrue retirement benefits under the Retirement Plan and the Supplemental Plan at the rate of two years of Credited Service (as defined by the Retirement Plan) for each one year of actual service, and the Employer will pay Executive after his retirement from the Employer a supplemental, non- qualified benefit reflecting the difference between the amount determined in accordance with this enhanced Credited Service and the amounts that Executive will be entitled under the Retirement Plan and the Supplemental Plan. This payment will be made monthly until Executive's death, without limit of time. This benefit will not survive Executive's death or be available in part to a surviving spouse, except that Executive may elect to receive it in one of the forms of payment available from the Retirement Plan that reduces Executive's monthly payment in order to provide for survivor benefits. (2) In addition to Executive's benefits under the Retirement Plan and the Supplemental Plan, and the supplemental benefit attributable to enhanced Credited Service described in paragraph (1) above, the Employer will pay Executive after his retirement from the Employer an additional supplemental, non-qualified benefit, on a monthly basis for the fifteen years after Executive's retirement begins, in an amount equal to 25 percent of FAC, as defined below, reduced by four percentage points for each year that Executive's age is less than 65 years at the time of Executive's retirement from the Employer. As used in this paragraph, "FAC" means Executive's monthly Final Average Compensation, as defined in the Supplemental Plan, but limited to 170 percent of the monthly average of Executive's high consecutive 36 months of base salary. This benefit will not survive Executive's death or be available in part to a surviving spouse. In addition, if Executive remains employed with the Employer until Executive attains age 58 (age 55 in the event that Executive executes the Release required by Section 5.4(b) hereof following a Termination upon a Change of Control as defined in Section 6.1(f) hereof, (a) Executive will be vested in and eligible to receive upon Executive's voluntary termination thereafter, notwithstanding Section 5.5 hereof, a Target Benefit in accordance with the terms of the Supplemental Plan notwithstanding that Executive had not attained age 60, (b) such Target Benefit will not be reduced to reflect commencement prior to age 65 as otherwise would be required under Section V(a) of the Supplemental Plan or Section 6.4(a) hereof, and (c) assuming that Section 6.4(a) hereof does not apply to such termination, three (3) years will be added to Executive's service for purposes of such Target Benefit. 1.6. Reimbursement of Expenses; Vacation. Executive shall be provided with reimbursement of expenses related to Executive's employment by NUSCO on a basis no less favorable than that which may be authorized from time to time for senior level executives as a group, and shall be entitled to vacation and holidays in accordance with the Company's normal personnel policies for senior level executives. 1.7. Short-Term Incentive Compensation. Executive shall be entitled to participate in any short-term incentive compensation programs established by the Company for its senior level executives generally, depending upon achievement of certain annual individual or business performance objectives specified and approved by the Trustees (or a Committee thereof) in its sole discretion; provided, however, that Executive's "target opportunity" and "maximum opportunity" under any such program shall be at least 100% and 200% respectively of Executive's Base Salary, except that the Trustees may change these "target opportunity" and "maximum opportunity" percentages as part of a general revision of executive compensation which also applies to other senior level executives of the Company. Executive's short-term incentive compensation, either in shares of NU or cash, as applicable from time to time, shall be paid to Executive, subject to the Trustees' reasonable discretion, not later than such payments are made to the Company's senior level executives generally. 1.8. Long-Term Incentive Compensation. Executive shall also be entitled to participate in any long-term incentive compensation programs established by the Company for its senior level executives generally, depending upon achievement of certain business performance objectives specified and approved by the Trustees (or a Committee thereof) in its sole discretion; provided, however, that Executive's "target opportunity" and "maximum opportunity" under any such program shall be at least 150% and 300% respectively of Executive's Base Salary, except that the Trustees may change these "target opportunity" and "maximum opportunity" percentages as part of a general revision of executive compensation which also applies to other senior level executives of the Company. Executive's long-term incentive compensation, either in shares of NU, restricted stock units, options or cash, as applicable from time to time, shall be paid to Executive, subject to the Trustees' reasonable discretion, not later than such payments are made to the Company's senior level executives generally. 2. Confidential Information. Executive recognizes and acknowledges that by reason of Executive's employment by and service to the Company before, during and, if applicable, after the Employment Term Executive has had and will continue to have access to certain confidential and proprietary information relating to the business of the Company, which may include, but is not limited to, trade secrets, trade "know-how", customer information, supplier information, cost and pricing information, marketing and sales techniques, strategies and programs, computer programs and software and financial information (collectively referred to as "Confidential Information"). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and Executive covenants that Executive will not, unless expressly authorized in writing by the Board, at any time during the course of Executive's employment use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Executive also covenants that at any time after the termination of such employment, directly or indirectly, Executive will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Executive or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Executive to divulge, disclose or make accessible such information, in which case Executive will inform NUSCO in writing promptly of such required disclosure, but in any event at least two business days prior to disclosure. All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Executive's possession during the course of Executive's employment shall remain the property of the Company. Except as required in the performance of Executive's duties for the Company, or unless expressly authorized in writing by the Board, Executive shall not remove any written Confidential Information from the Company's premises, except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Upon termination of Executive's employment, Executive agrees immediately to return to the Company all written Confidential Information in Executive's possession. 3. Non-Competition; Non-Solicitation. (a) During Executive's employment by the Company and for a period of two years after Executive's termination of employment for any reason, within the Company's "service area," as defined below, Executive will not, except with the prior written consent of the Board, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit Executive's name to be used in connection with, any business or enterprise which is engaged in any business that is competitive with any regulated business or enterprise in which the Company is engaged ("Competitive Company"). For the purposes of this Section, "Service Area" shall mean the geographic area within the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont, or any other state in which the Company, in the aggregate, generates 25% or more of its revenues in the fiscal year of NU in which Executive's termination of employment occurs. Further, for the purposes of this Section, "Competitive Company" shall mean Consolidated Edison, Inc., Energy East Corporation, Hydro-Quebec, KeySpan Energy, National Grid USA, NSTAR, or The United Illuminating Company, their assigns or successors, or any other company which in the future engages in competition with the regulated business of the Company in the Service Area. Executive acknowledges that the listed service area is the area in which the Company presently does business. (b) The foregoing restrictions shall not be construed to prohibit the ownership by Executive of less than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), provided that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Executive's rights as a shareholder, or seeks to do any of the foregoing. (c) Executive further covenants and agrees that during Executive's employment by the Company and for the period of two years thereafter, Executive will not, directly or indirectly, (i) solicit, divert, take away, or attempt to solicit, divert or take away, any of the Company's "Principal Customers," defined for the purposes hereof to include any customer of the Company, from which $100,000 or more of annual gross revenues are derived at such time, or (ii) encourage any Principal Customer to reduce its patronage of the Company. (d) Executive further covenants and agrees that during Executive's employment by the Company and for the period of two years thereafter, Executive will not, except with the prior written consent of the Trustees, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of, any person who was a managerial or higher level employee of the Company at any time during the term of Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing covenant of Executive shall not apply to any person after 12 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. (e) Nothing in this Section 3 shall be construed to prohibit Executive, if Executive is a lawyer, from being connected as a partner, principal, shareholder, associate, counsel or otherwise with another lawyer or a law firm which performs services for clients engaged in any business or enterprise that is competitive with any business or enterprise in which the Company is engaged, provided that Executive is not personally involved, directly or indirectly, in performing services for any such clients during the period specified in Section 3(a) and provided further that such lawyer or law firm takes reasonable precautions to screen Executive from participating for the period specified in Section 3(a) in the representation of any such clients. The parties agree that any such personal performance of services by Executive for any such clients during such period would create an unreasonable risk of violation by Executive of the provisions of Section 2 of this Agreement, and Executive agrees (and the Company may elect) to notify in writing any lawyer or law firm with which Executive may be connected during the period specified in Section 3(a) of Executive's Agreement as set forth herein. The parties further agree that, in addition to the nondisclosure obligations of Section 2 of this Agreement, Executive remains subject to all ethical obligations relating to confidentiality of information to the extent that Executive acted as a lawyer for the Company, but Executive's knowledge of such confidential information shall not be imputed to such other lawyer or law firm with which Executive subsequently may become connected. Executive agrees to notify the Company in writing in advance of the precautions to be taken by such lawyer or law firm to screen Executive from any representation of such competing client of such lawyer or law firm. 4. Equitable Relief. (a) Executive acknowledges and agrees that the restrictions contained in Sections 2 and 3 are reasonable and necessary to protect and preserve the legitimate interests, properties, goodwill and business of the Company, that NUSCO would not have entered into this Agreement in the absence of such restrictions and that irreparable injury will be suffered by the Company should Executive breach any of the provisions of those Sections. Executive represents and acknowledges that (i) Executive has been advised by NUSCO to consult Executive's own legal counsel in respect of this Agreement, and (ii) that Executive has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with Executive's counsel. (b) Executive further acknowledges and agrees that a breach of any of the restrictions in Sections 2 and 3 cannot be adequately compensated by monetary damages. Executive agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 2 or 3 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event that any of the provisions of Sections 2 or 3 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, it is the intention of the parties that the provision shall be amended to the extent of the maximum time, geographic, service, or other limitations permitted by applicable law, that such amendment shall apply only within the jurisdiction of the court that made such adjudication and that the provision otherwise be enforced to the maximum extent permitted by law. (c) If Executive breaches any of Executive's obligations under Sections 2 or 3 hereof, and such breach constitutes "cause," as defined in Section 5.3 hereof, or would constitute Cause if it had occurred during the Employment Term, the Company shall thereafter have no Target Benefit obligation pursuant to the Supplemental Plan, but shall remain obligated for the Make-Whole Benefit under the Supplemental Plan, but only to the extent not modified by the terms of this Agreement, and compensation and other benefits provided in any plans, policies or practices then applicable to Executive in accordance with the terms thereof. (d) Executive irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Sections 2 or 3 hereof, including without limitation, any action commenced by the Company for preliminary and permanent injunctive relief and other equitable relief, may be brought in the United States District Court for the District of Connecticut, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Hartford, Connecticut, (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Executive may have to the laying of venue of any such suit, action or proceeding in any such court. Executive also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 10 hereof. (e) Executive agrees that for a period of five years following the termination of Executive's employment by the Company Executive will provide, and that at all times after the date hereof the Company may similarly provide, a copy of Sections 2 and 3 hereof to any business or enterprise (i) which Executive may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Executive may be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Executive may use or permit Executive's name to be used; provided, however, that this provision shall not apply in respect of Section 3 hereof after expiration of the time periods set forth therein. 5. Termination. The Employment Term shall terminate upon the occurrence of any one of the following events: 5.1. Disability. NUSCO may terminate the Employment Term if Executive is unable substantially to perform Executive's duties and responsibilities hereunder to the full extent required by the Board by reason of illness, injury or incapacity for six consecutive months, or for more than six months in the aggregate during any period of twelve calendar months; provided, however, that NUSCO shall continue to pay Executive's Base Salary until NUSCO acts to terminate the Employment Term. In addition, Executive shall be entitled to receive (i) any amounts earned, accrued or owing but not yet paid under Section 1 above and (ii) any other benefits in accordance with the terms of any applicable plans and programs of the Company. Otherwise, the Company shall have no further liability or obligation to Executive for compensation under this Agreement. Executive agrees, in the event of a dispute under this Section 5.1, to submit to a physical examination by a licensed physician selected by the Board. 5.2. Death. The Employment Term shall terminate in the event of Executive's death. In such event, NUSCO shall pay to Executive's executors, legal representatives or administrators, as applicable, an amount equal to the installment of Executive's Base Salary set forth in Section 1.4 hereof for the month in which Executive dies. In addition, Executive's estate shall be entitled to receive (i) any other amounts earned, accrued or owing but not yet paid under Section 1 above and (ii) any other benefits in accordance with the terms of any applicable plans and programs of the Company. Otherwise, the Company shall have no further liability or obligation under this Agreement to Executive's executors, legal representatives, administrators, heirs or assigns or any other person eclaiming under or through Executive. 5.3. Cause. NUSCO may terminate the Employment Term, at any time, for "cause" upon written notice, in which event all payments under this Agreement shall cease, except for Base Salary to the extent already accrued, and no Target Benefit shall be due under the Supplemental Plan, but Executive shall remain entitled to the Make-Whole Benefit under the Supplemental Plan, but only to the extent not modified by the terms of this Agreement, and any other benefits in accordance with the terms of any applicable plans and programs of the Company. For purposes of this Agreement, Executive's employment may be terminated for "cause" if (i) Executive is convicted of a felony, (ii) in the reasonable determination of the Board, Executive has (x) committed an act of fraud, embezzlement, or theft in connection with Executive's duties in the course of Executive's employment with the Company, (y) caused intentional, wrongful damage to the property of the Company or intentionally and wrongfully disclosed Confidential Information, or (z) engaged in gross misconduct or gross negligence in the course of Executive's employment with the Company or (iii) Executive materially breached Executive's obligations under this Agreement and shall not have remedied such breach within 30 days after receiving written notice from the Board specifying the details thereof. For purposes of this Agreement, an act or omission on the part of Executive shall be deemed "intentional" only if it was not due primarily to an error in judgment or negligence and was done by Executive not in good faith and without reasonable belief that the act or omission was in the best interest of the Company. 5.4. Termination Without Cause and Non-Renewal. (a) NUSCO may remove Executive, at any time, without cause from the position in which Executive is employed hereunder (in which case the Employment Term shall be deemed to have ended) upon not less than 60 days' prior written notice to Executive; provided, however, that, in the event that such notice is given, Executive shall be under no obligation to render any additional services to the Company and, subject to the provisions of Section 3 hereof, shall be allowed to seek other employment. Upon any such removal or if NUSCO informs Executive that the Agreement will not be renewed after March 31, 2004 or at the end of any subsequent renewal period, Executive shall be entitled to receive, as liquidated damages for the failure of the Company to continue to employ Executive, only the amount due to Executive under the Company's then current severance pay plan for employees. No other payments or benefits shall be due under this Agreement to Executive, but Executive shall be entitled to any other benefits in accordance with the terms of any applicable plans and programs of the Company. Notwithstanding anything in this Agreement to the contrary, on or after Executive attains age 65, no action by the Company shall be treated as a removal from employment or non-renewal if on the effective date of such action Executive satisfies all of the requirements for the executive or high policy-making exception to applicable provisions of state and federal age discrimination legislation. (b) Notwithstanding the provisions of Section 5.4(a) (other than the last sentence), in the event that Executive executes a written release upon such removal or non-renewal, substantially in the form attached hereto as Annex 1, (the "Release"), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive's employment by the Company (other than any entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued a benefit), or the termination thereof, Executive shall be entitled to receive, in lieu of the payment described in subsection (a) hereof, which Executive agrees to waive, (i) as liquidated damages for the failure of the Company to continue to employ Executive, a single cash payment, within 30 days after the effective date of the removal or non-renewal, equal to Executive's Base Compensation, as defined in Section 6.1(b) below, which shall not constitute a "severance benefit" to Executive for purposes of the Target Benefit under the Supplemental Plan; (ii) for a period of two years following the end of the Employment Term, Executive and Executive's spouse and dependents shall be eligible for a continuation of those Benefit Coverages, as in effect at the time of such termination or removal, and as the same may be changed from time to time, as if Executive had been continued in employment during said period or to receive cash in lieu of such benefits or premiums, as applicable, where such Benefit Coverages may not be continued (or where such continuation would adversely affect the tax status of the plan pursuant to which the Benefit Coverage is provided) under applicable law or regulations; (iii) any other amounts earned, accrued or owing but not yet paid under Section 1 above; (iv) any other benefits in accordance with the terms of any applicable plans and programs of the Company and a payment equal to any unused vacation; (v) as additional consideration for the non-competition and non- solicitation covenant contained in Section 3, a single cash payment, within 30 days after the effective date of the removal or non-renewal, equal to Executive's Base Compensation, as defined in Section 6.1(b) below, which shall not constitute a "severance benefit" to Executive for purposes of the Target Benefit under the Supplemental Plan; and (vi) Under the Supplemental Plan, Executive shall be entitled to receive a Target Benefit and a Make-Whole Benefit commencing on the first day of any month following Executive's Termination, whether or not Executive has then satisfied the requirements for early, normal or deferred retirement under, or is then entitled to receive a vested benefit under, the Company's Retirement Plan, using the Termination Date as the "date of retirement" contemplated by Section IV(b) of the Supplemental Plan; Executive's years of service with the Company through the 24th month following the Termination Date shall be taken into account in determining the amount of the Target Benefit and the Make-Whole Benefit and 24 months shall be added to Executive's age for purposes of determining the reduction in such Benefits, if any, to reflect early commencement, utilizing the early commencement factor for Executive's age and years of service, each as so modified, set forth in the Company's Retirement Plan as in effect on the Termination Date; and (vii) All stock option grants, to the extent not already vested prior to the removal or non-renewal, shall be fully vested and exercisable or paid as if Executive had remained actively employed by the Company, and had satisfied all time requirements as to exercise, including the right of exercise, where appropriate, within 36 months after the removal or non-renewal. 5.5. Voluntary Termination. Executive may voluntarily terminate the Employment Term upon 30 days' prior written notice for any reason. In such event, after the effective date of such termination, no further payments shall be due under this Agreement except that Executive shall be entitled to any benefits due in accordance with the terms of any applicable plan and programs of the Company. 6. Payments Upon a Change in Control. 6.1. Definitions. For all purposes of this Section 6, the following terms shall have the meanings specified in this Section 6.1 unless the context otherwise clearly requires: (a) "Affiliate" shall mean an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (b) "Base Compensation" shall mean, for a calendar year, Executive's annualized Base Salary as would be reported for federal income tax purposes on Form W-2 for such calendar year, together with any and all salary reduction authorized amounts under any of the Company's benefit plans or programs for such calendar year, and all short-term incentive compensation at the target level to be paid to Executive in all employee capacities with the Company attributable to such calendar year and taxable in the following calendar year. "Base Compensation" shall be the higher of (i) Base Compensation for the calendar year in which occurs the Change of Control or, if no Change of Control occurs, the calendar year in which occurs the involuntary termination; or (ii) Base Compensation for the full calendar year immediately prior thereto. "Base Compensation" shall not include the value of any stock options, performance units, or other elements of Long-Term Incentive Compensation or any exercise thereunder. (c) "Change of Control" shall mean the happening of any of the following: (i) When any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company, its Affiliates, or any Company employee benefit plan (including any trustee of such plan acting as trustee), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of NU representing more than 20% of the combined voting power of either (i) the then outstanding common shares of NU (the "Outstanding Common Shares") or (ii) the then outstanding voting securities of NU entitled to vote generally in the election of directors (the "Voting Securities"); or (ii) Individuals who, as of the beginning of any twenty-four month period, constitute the Trustees (the "Incumbent Trustees") cease for any reason to constitute at least a majority of the Trustees or cease to be able to exercise the powers of the majority of the Trustees, provided that any individual becoming a trustee subsequent to the beginning of such period whose election or nomination for election by NU's shareholders was approved by a vote of at least a majority of the trustees then comprising the Incumbent Trustees shall be considered as though such individual were a member of the Incumbent Trustees, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Trustees of NU (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Consummation by NU of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Common Shares and Voting Securities immediately prior to such Business Combination do not, following consummation of all transactions intended to constitute part of such Business Combination, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation, business trust or other entity resulting from or being the surviving entity in such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Outstanding Common Shares and Voting Securities, as the case may be; or (iv) Consummation of a complete liquidation or dissolution of NU or sale or other disposition of all or substantially all of the assets of NU other than to a corporation, business trust or other entity with respect to which, following consummation of all transactions intended to constitute part of such sale or disposition, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Shares and Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Common Shares and Voting Securities, as the case may be, immediately prior to such sale or disposition. (d) "Termination Date" shall mean the date of receipt of a Notice of Termination of this Agreement or any later date specified therein. (e) "Termination of Employment" shall mean the termination of Executive's actual employment relationship with the Company, including a failure to renew the Agreement after March 31, 2004 or at the end of any subsequent renewal period, in either case occasioned by the Company's action. (f) "Termination upon a Change of Control" shall mean a Termination of Employment during the period beginning on the earlier of (a) approval by the shareholders of NU of a Change of Control or (b) consummation of a Change of Control and, in either case, ending on the second anniversary of the consummation of the transaction that constitutes the Change of Control (or if such period started on shareholder approval and after such shareholder approval the Trustees abandon the transaction, on the date the Trustees abandoned the transaction) either: (i) initiated by the Company for any reason other than Executive's (w) disability, as described in Section 5.1 hereof, (x) death, (y) retirement on or after attaining age 65, or (z) "cause," as defined in Section 5.3 hereof, or (ii) initiated by Executive (A) upon any failure of the Company materially to comply with and satisfy any of the terms of this Agreement, including any significant reduction by the Company of the authority, duties or responsibilities of Executive, any reduction of Executive's compensation or benefits as in effect immediately prior to the Change of Control, or the assignment to Executive of duties which are materially inconsistent with the duties of Executive's position as defined in Section 1.2 above, or (B) if Executive is transferred, without Executive's written consent, to a location that is more than 50 miles from Executive's principal place of business immediately preceding such approval or consummation; provided, that the imposition on Executive following a Change of Control of a limitation of Executive's scope of authority such that Executive's responsibilities relate primarily to a company or companies whose common equity is not publicly held shall be considered a "significant reduction by the Company of the authority, duties or responsibilities of Executive" for the purposes hereof. Notwithstanding the foregoing, for purposes of this definition: (i) a Termination of Employment which occurs prior to consummation of a Change of Control shall not constitute a Termination upon a Change of Control, as determined above, unless it is specifically approved by the Trustees in their sole discretion; and (ii) a Termination initiated by Executive prior to consummation of a Change of Control shall not constitute a Termination upon a Change of Control if the failure, reduction, assignment or transfer is determined by the Trustees to be unrelated to the impending Change of Control. 6.2. Notice of Termination. Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for a Termination of Employment and the applicable provision hereof, and (iii) if the Termination Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall not be more than 15 days after the giving of such notice). 6.3. Payments upon Termination. Subject to the provisions of Sections 6.6 and 6.7 hereof, in the event of Executive's Termination upon a Change of Control, NUSCO agrees (a) in the event Executive executes the Release required by Section 5.4(b), to pay to Executive, in a single cash payment, within thirty days after the Termination Date, two multiplied by Executive's Base Compensation and, in addition, all amounts, benefits and Benefit Coverages described in Section 5.4(b)(ii), (iii), (iv) and (v), provided that in (ii) Benefit Coverages shall continue for three years instead of two, or (b) in the event Executive fails or refuses to execute the Release required by Section 5.4(b), to pay to Executive, in a single cash payment, within thirty days after the Termination Date, the amount due under Section 5.4(a) above and, in addition, all other amounts and benefits described in Section 5.4(a). 6.4. Other Payments, Supplemental Plan, Stock Option and Stock Grants, etc. Subject to the provisions of Sections 6.6 and 6.7 hereof, in the event of Executive's Termination upon a Change of Control, and the execution of the Release required by Section 5.4(b): (a) Under the Supplemental Plan, Executive shall be entitled to a Target Benefit and a Make-Whole Benefit commencing as provided below, whether or not Executive is then age 60 and notwithstanding the Plan's requirement that a participant retire on or after age 55 and be entitled to a vested benefit under the Company's Retirement Plan. There shall be an actuarial reduction in the event the Target Benefit and Make-Whole Benefit commence prior to age 65, if at the Termination Date Executive has not yet attained age 52, or if at the Termination Date Executive has not attained age and service for retirement benefit calculations that total at least 85 years. The actuarial reduction shall be 2% for each year younger than age 65 to age 60, if applicable, 3% for each year younger than age 60 to age 55 and a full actuarial reduction, as determined by the enrolled actuary for the Retirement Plan, for each year younger than 55. Executive's years of service with the Company through the 36th month following the Termination Date shall be taken into account in determining the amount of the Target Benefit and Make-Whole Benefit and 36 months shall be added to Executive's age for purposes of determining Executive's eligibility for both such Benefits and the actuarial reduction under the Plan as modified herein. Executive shall determine the form of payment in which the Target Benefit and Make-Whole Benefit shall be paid, in accordance with the terms of the Supplemental Plan or may elect to receive a single sum payment equal to the then actuarial present value (computed using the 1983 GAM (50%/Male/50%/ Female) Mortality Table and at an interest rate equal to the discount rate used in the Retirement Plan's previous year's FASB 87 accounting) of the amount of the Target Benefit and Make-Whole Benefit as determined in accordance with the first three sentences of this subsection (a). Payment shall commence or be made within 30 days after the Termination Date or on any date thereafter, as specified by Executive in a written election. Such election may be made at any time and amended at any time but any election or amendment, other than one made within 30 days of the Effective Date, shall be ineffective if made within six months prior to the Termination Date. In the absence of any election or determination provided for herein, the terms of the Supplemental Plan shall govern the form and time of payment. (b) Executive's years of service with the Company through the 36th month following the Termination Date shall be taken into account in determining Executive's eligibility for, but not amount of cost sharing under, the Company's retiree health plan and, in addition, 36 months shall be added to Executive's age for this purpose. (c) Unless the Compensation Committee of the Northeast Utilities Board of Trustees comprises the same members as those on the Committee immediately before the Change of Control and determines otherwise, (i) all stock option grants previously granted to Executive, to the extent not already vested prior to such occurrence, shall be fully vested and immediately exercisable as if Executive had satisfied all requirements as to exercise, including the right of exercise, where appropriate, within 36 months of such occurrence and, if the Change of Control results in the Voting Securities of NU ceasing to be traded on a national securities exchange or though the national market system of the National Association of Securities Dealers Inc., the value of a share of stock on the day the option is exercised shall be deemed to be the closing price on the day such Voting Securities cease trading; and (ii) if NU is not the surviving corporation (or survives only as a subsidiary of another corporation), those portions of any such options that have not been exercised shall be assumed by, or replaced with comparable options or rights by, the surviving corporation. Notwithstanding the foregoing, such Committee (if composed of the same members as those on the Committee immediately before the Change of Control) may require Executive to surrender the remainder of any or all such options, in each case in exchange for a payment by the Company, in cash or common shares as determined by the Committee, in an amount equal to the amount by which the then fair market value of the common shares subject to such option exceeds the exercise price per share of such option, or, after giving Executive an opportunity to exercise such option, terminate the option at such time as the Committee deems appropriate. 6.5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive's continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by the Company and for which Executive may qualify; provided, however, that if Executive becomes entitled to and receives all of the payments provided for in this Agreement, Executive hereby waives Executive's right to receive payments under any severance plan or similar program applicable to all employees of the Company. 6.6. Certain Increase in Payments. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), Executive shall be paid an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive after deduction of any excise tax imposed under Section 4999 of the Code, and any federal, state and local income and employment tax and excise tax imposed upon the Gross-Up Payment shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income tax and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the Termination Date, net of the maximum reduction in federal income taxes that may be obtained from the deduction of such state and local taxes. (b) All determinations to be made under this Section 6 shall be made by the Company's independent public accountant immediately prior to the Change of Control (the "Accounting Firm"), which firm shall provide its determinations and any supporting calculations both to the Company and Executive within 10 days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and Executive. Within five days after the Accounting Firm's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of Executive such amounts as are then due to Executive under this Agreement. (c) In the event that upon any audit by the Internal Revenue Service, or by a state or local taxing authority, of the Payment or Gross-Up Payment, a change is finally determined to be required in the amount of taxes paid by Executive, appropriate adjustments shall be made under this Agreement such that the net amount which is payable to Executive after taking into account the provisions of Section 4999 of the Code shall reflect the intent of the parties as expressed in subsection (a) above, in the manner determined by the Accounting Firm. (d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses resulting from or relating to its determinations pursuant to subsections (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm. 6.7. Changes to Sections 6.3 and 6.4. The payments, benefits and other compensation provided under Sections 6.3 and 6.4 may be revised, in the sole discretion of the Board, after the expiration of two years following written notice to Executive of the Board's intention to do so and the changes to be made; provided, however, that no revision may be made that would reduce the payments, benefits and other compensation below those provided under Section 5.4 in the event Executive's employment is terminated without cause or this Agreement is not renewed; and provided, further, that no such notice may be given and no such revision may become effective following a Change of Control. Notice under this Section 6.7 shall not constitute a non-renewal or removal of Executive, nor shall any such actual revision be grounds for a determination that this Agreement is not being renewed or that Executive has been removed, for purposes of Section 5.4. 7. Survivorship. The respective rights and obligations of the parties under this Agreement shall survive any termination of Executive's employment to the extent necessary to the intended preservation of such rights and obligations. 8. Mitigation. Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise and there shall be no offset against amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain. 9. Arbitration; Expenses. In the event of any dispute under the provisions of this Agreement other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in the City of Hartford, Connecticut in accordance with National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by the Company and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable (except as provided in Section 52-418 of the Connecticut General Statutes) and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. If Executive prevails on any material issue which is the subject of such arbitration or lawsuit, the Company shall be responsible for all of the fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration (including the Company's and Executive's reasonable attorneys' fees and expenses). Otherwise, each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys' fees and expenses) and shall share the fees of the American Arbitration Association. 10. Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company, to: Northeast Utilities Service Company P.O. Box 270 Hartford, CT 06141-0270 Attention: Vice President, Secretary and General Counsel If to Executive, to: John H. Forsgren 235 East River Dr. East Hartford, CT 06108 or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 11. Contents of Agreement; Amendment and Assignment. (a) This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer and by Executive. (b) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Executive under this Agreement are of a personal nature and shall not be assignable or delegatable in whole or in part by Executive. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the extent the Company would be required to perform if no such succession had taken place. 12. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. 13. Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. 14. Beneficiaries/References. Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable under this Agreement following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of Executive's incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to Executive's beneficiary, estate or other legal representative. 15. Miscellaneous. All section headings used in this Agreement are for convenience only. This Agreement may be executed in counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 16. Withholding. The Company may withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation. Executive shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement. 17. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Connecticut without giving effect to any conflict of laws provisions. 18. Adoption by Affiliates; Obligations. The obligations under this Agreement shall, in the first instance, be paid and satisfied by NUSCO; provided, however, that, NUSCO will use its best efforts to cause NU and each entity in which NU (or its successors or assigns) now or hereafter holds, directly or indirectly, more than a 50 percent voting interest to approve and adopt this Agreement and, by such approval and adoption, to be bound by the terms hereof as though a signatory hereto. If NUSCO shall be dissolved or for any other reason shall fail to pay and satisfy the obligations, each individual such entity thereafter shall be jointly and severally liable to pay and satisfy the obligations to Executive. 19. Establishment of Trust. The Company may establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy any of its obligations under this Agreement. Funding of such trust fund shall be subject to the Board's discretion, as set forth in the agreement pursuant to which the fund will be established. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. NORTHEAST UTILITIES SERVICE COMPANY /s/ John H. Forsgren By /s/ Michael G. Morris Executive Date: April 10, 2003 Date: April 10, 2003 EX-10.45.6 4 exh10456griseempll.txt GRISE EMPLOYMENT AGREEMENT Exhibit 10.45.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of April 1, 2003, by and between Northeast Utilities Service Company, a Connecticut corporation ("NUSCO"), with its principal office in Berlin, Connecticut, and Cheryl W. Grise, a resident of West Hartford, Connecticut ("Executive"). WHEREAS, Executive is currently employed as President-Utility Group of Northeast Utilities ("NU") and holds senior executive positions with certain of the subsidiaries of NU (NU and the Affiliates, as such term is defined in Section 6.1(a), of NU being referred to collectively herein as the "Company") and both parties desire to enter into an agreement superseding all prior employment agreements to reflect Executive's contribution to the Company's business in Executive's executive capacities and to provide for Executive's continued employment by the Company, upon the terms and conditions set forth herein: NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Employment. The Company hereby agrees to continue the employment of Executive, and Executive hereby accepts such employment and agrees to perform Executive's duties and responsibilities, in accordance with the terms, conditions and provisions hereinafter set forth. 1.1. Employment Term. The term of Executive's employment under this Agreement shall commence as of April 1, 2003 (the "Effective Date") and shall continue until March 31, 2004, unless sooner terminated in accordance with Section 5 or Section 6 hereof, and shall automatically renew for periods of one year unless one party gives written notice to the other, at least six months prior to March 31, 2004 or at least six months prior to the end of any one-year renewal period, that the Agreement shall not be further extended. The period commencing as of the Effective Date and ending on the date on which the term of Executive's employment under the Agreement shall terminate is hereinafter referred to as the "Employment Term". 1.2. Duties and Responsibilities. Executive shall serve in such senior positions as directed by NUSCO's Board of Directors (the "Board") or the Board of Trustees (the "Trustees") of NU that provide Executive with duties and compensation that are substantially equivalent to Executive's current position in terms of duties and responsibilities. During the Employment Term, Executive shall perform all duties and accept all responsibilities incident to such positions as may be assigned to Executive by the Board. 1.3. Extent of Service. During the Employment Term, Executive agrees to use Executive's best efforts to carry out Executive's duties and responsibilities under Section 1.2 hereof and, consistent with the other provisions of this Agreement, to devote substantially all Executive's business time, attention and energy thereto. Except as provided in Section 3 hereof, the foregoing shall not be construed as preventing Executive from making minority investments in other businesses or enterprises provided that Executive agrees not to become engaged in any other business activity which, in the reasonable judgment of the Board, is likely to interfere with Executive's ability to discharge Executive's duties and responsibilities to the Company. 1.4. Base Salary. For all the services rendered by Executive hereunder, NUSCO shall pay Executive a base salary ("Base Salary"), commencing on the Effective Date, at the annual rate then being paid to Executive by NUSCO, payable in installments at such times as NUSCO customarily pays its other senior level executives (but in any event no less often than monthly). Executive's Base Salary shall be reviewed annually for appropriate adjustment (but shall not be reduced below that in effect on the Effective Date without Executive's written consent) by the Trustees pursuant to its normal performance review policies for senior level executives. Executive's annual Base Salary shall not be reduced below $430,000 without Executive's written consent. 1.5. Retirement and Benefit Coverages. During the Employment Term, Executive shall be entitled to participate in all (a) employee pension and retirement plans and programs ("Retirement Plans") and (b) welfare benefit plans and programs ("Benefit Coverages"), in each case made available to the Company's senior level executives as a group or to its employees generally, as such Retirement Plans or Benefit Coverages may be in effect from time to time, including, without limitation, the Company's Supplemental Executive Retirement Plan for Officers (the "Supplemental Plan"), both as to the Make-Whole Benefit and the Target Benefit. 1.6. Reimbursement of Expenses; Vacation. Executive shall be provided with reimbursement of expenses related to Executive's employment by NUSCO on a basis no less favorable than that which may be authorized from time to time for senior level executives as a group, and shall be entitled to vacation and holidays in accordance with the Company's normal personnel policies for senior level executives. 1.7. Short-Term Incentive Compensation. Executive shall be entitled to participate in any short-term incentive compensation programs established by the Company for its senior level executives generally, depending upon achievement of certain annual individual or business performance objectives specified and approved by the Trustees (or a Committee thereof) in its sole discretion; provided, however, that Executive's "target opportunity" and "maximum opportunity" under any such program shall be at least 70% and 140% respectively of Executive's Base Salary, except that the Trustees may change these "target opportunity" and "maximum opportunity" percentages as part of a general revision of executive compensation which also applies to other senior level executives of the Company. Executive's short-term incentive compensation, either in shares of NU or cash, as applicable from time to time, shall be paid to Executive, subject to the Trustees' reasonable discretion, not later than such payments are made to the Company's senior level executives generally. 1.8. Long-Term Incentive Compensation. Executive shall also be entitled to participate in any long-term incentive compensation programs established by the Company for its senior level executives generally, depending upon achievement of certain business performance objectives specified and approved by the Trustees (or a Committee thereof) in its sole discretion; provided, however, that Executive's "target opportunity" and "maximum opportunity" under any such program shall be at least 150% and 300% respectively of Executive's Base Salary, except that the Trustees may change these "target opportunity" and "maximum opportunity" percentages as part of a general revision of executive compensation which also applies to other senior level executives of the Company. Executive's long-term incentive compensation, either in shares of NU, restricted stock units, options or cash, as applicable from time to time, shall be paid to Executive, subject to the Trustees' reasonable discretion, not later than such payments are made to the Company's senior level executives generally. 2. Confidential Information. Executive recognizes and acknowledges that by reason of Executive's employment by and service to the Company before, during and, if applicable, after the Employment Term Executive has had and will continue to have access to certain confidential and proprietary information relating to the business of the Company, which may include, but is not limited to, trade secrets, trade "know-how", customer information, supplier information, cost and pricing information, marketing and sales techniques, strategies and programs, computer programs and software and financial information (collectively referred to as "Confidential Information"). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and Executive covenants that Executive will not, unless expressly authorized in writing by the Board, at any time during the course of Executive's employment use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Executive also covenants that at any time after the termination of such employment, directly or indirectly, Executive will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Executive or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Executive to divulge, disclose or make accessible such information, in which case Executive will inform NUSCO in writing promptly of such required disclosure, but in any event at least two business days prior to disclosure. All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Executive's possession during the course of Executive's employment shall remain the property of the Company. Except as required in the performance of Executive's duties for the Company, or unless expressly authorized in writing by the Board, Executive shall not remove any written Confidential Information from the Company's premises, except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Upon termination of Executive's employment, Executive agrees immediately to return to the Company all written Confidential Information in Executive's possession 3. Non-Competition; Non-Solicitation. (a) During Executive's employment by the Company and for a period of two years after Executive's termination of employment for any reason, within the Company's "service area," as defined below, Executive will not, except with the prior written consent of the Board, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit Executive's name to be used in connection with, any business or enterprise which is engaged in any business that is competitive with any regulated business or enterprise in which the Company is engaged ("Competitive Company"). For the purposes of this Section, "Service Area" shall mean the geographic area within the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont, or any other state in which the Company, in the aggregate, generates 25% or more of its revenues in the fiscal year of NU in which Executive's termination of employment occurs. Further, for the purposes of this Section, "Competitive Company" shall mean Consolidated Edison, Inc., Energy East Corporation, Hydro-Quebec, KeySpan Energy, National Grid USA, NSTAR, or The United Illuminating Company, their assigns or successors, or any other company which in the future engages in competition with the regulated business of the Company in the Service Area. Executive acknowledges that the listed service area is the area in which the Company presently does business. (b) The foregoing restrictions shall not be construed to prohibit the ownership by Executive of less than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), provided that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Executive's rights as a shareholder, or seeks to do any of the foregoing. (c) Executive further covenants and agrees that during Executive's employment by the Company and for the period of two years thereafter, Executive will not, directly or indirectly, (i) solicit, divert, take away, or attempt to solicit, divert or take away, any of the Company's "Principal Customers," defined for the purposes hereof to include any customer of the Company, from which $100,000 or more of annual gross revenues are derived at such time, or (ii) encourage any Principal Customer to reduce its patronage of the Company. (d) Executive further covenants and agrees that during Executive's employment by the Company and for the period of two years thereafter, Executive will not, except with the prior written consent of the Trustees, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of, any person who was a managerial or higher level employee of the Company at any time during the term of Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing covenant of Executive shall not apply to any person after 12 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. (e) Nothing in this Section 3 shall be construed to prohibit Executive, if Executive is a lawyer, from being connected as a partner, principal, shareholder, associate, counsel or otherwise with another lawyer or a law firm which performs services for clients engaged in any business or enterprise that is competitive with any business or enterprise in which the Company is engaged, provided that Executive is not personally involved, directly or indirectly, in performing services for any such clients during the period specified in Section 3(a) and provided further that such lawyer or law firm takes reasonable precautions to screen Executive from participating for the period specified in Section 3(a) in the representation of any such clients. The parties agree that any such personal performance of services by Executive for any such clients during such period would create an unreasonable risk of violation by Executive of the provisions of Section 2 of this Agreement, and Executive agrees (and the Company may elect) to notify in writing any lawyer or law firm with which Executive may be connected during the period specified in Section 3(a) of Executive's Agreement as set forth herein. The parties further agree that, in addition to the nondisclosure obligations of Section 2 of this Agreement, Executive remains subject to all ethical obligations relating to confidentiality of information to the extent that Executive acted as a lawyer for the Company, but Executive's knowledge of such confidential information shall not be imputed to such other lawyer or law firm with which Executive subsequently may become connected. Executive agrees to notify the Company in writing in advance of the precautions to be taken by such lawyer or law firm to screen Executive from any representation of such competing client of such lawyer or law firm. 4. Equitable Relief. (a) Executive acknowledges and agrees that the restrictions contained in Sections 2 and 3 are reasonable and necessary to protect and preserve the legitimate interests, properties, goodwill and business of the Company, that NUSCO would not have entered into this Agreement in the absence of such restrictions and that irreparable injury will be suffered by the Company should Executive breach any of the provisions of those Sections. Executive represents and acknowledges that (i) Executive has been advised by NUSCO to consult Executive's own legal counsel in respect of this Agreement, and (ii) that Executive has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with Executive's counsel. (b) Executive further acknowledges and agrees that a breach of any of the restrictions in Sections 2 and 3 cannot be adequately compensated by monetary damages. Executive agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 2 or 3 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event that any of the provisions of Sections 2 or 3 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, it is the intention of the parties that the provision shall be amended to the extent of the maximum time, geographic, service, or other limitations permitted by applicable law, that such amendment shall apply only within the jurisdiction of the court that made such adjudication and that the provision otherwise be enforced to the maximum extent permitted by law. (c) If Executive breaches any of Executive's obligations under Sections 2 or 3 hereof, and such breach constitutes "cause," as defined in Section 5.3 hereof, or would constitute Cause if it had occurred during the Employment Term, the Company shall thereafter have no Target Benefit obligation pursuant to the Supplemental Plan, but shall remain obligated for the Make-Whole Benefit under the Supplemental Plan, but only to the extent not modified by the terms of this Agreement, and compensation and other benefits provided in any plans, policies or practices then applicable to Executive in accordance with the terms thereof. (d) Executive irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Sections 2 or 3 hereof, including without limitation, any action commenced by the Company for preliminary and permanent injunctive relief and other equitable relief, may be brought in the United States District Court for the District of Connecticut, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Hartford, Connecticut, (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Executive may have to the laying of venue of any such suit, action or proceeding in any such court. Executive also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 10 hereof. (e) Executive agrees that for a period of five years following the termination of Executive's employment by the Company Executive will provide, and that at all times after the date hereof the Company may similarly provide, a copy of Sections 2 and 3 hereof to any business or enterprise (i) which Executive may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Executive may be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Executive may use or permit Executive's name to be used; provided, however, that this provision shall not apply in respect of Section 3 hereof after expiration of the time periods set forth therein. 5. Termination. The Employment Term shall terminate upon the occurrence of any one of the following events: 5.1. Disability. NUSCO may terminate the Employment Term if Executive is unable substantially to perform Executive's duties and responsibilities hereunder to the full extent required by the Board by reason of illness, injury or incapacity for six consecutive months, or for more than six months in the aggregate during any period of twelve calendar months; provided, however, that NUSCO shall continue to pay Executive's Base Salary until NUSCO acts to terminate the Employment Term. In addition, Executive shall be entitled to receive (i) any amounts earned, accrued or owing but not yet paid under Section 1 above and (ii) any other benefits in accordance with the terms of any applicable plans and programs of the Company. Otherwise, the Company shall have no further liability or obligation to Executive for compensation under this Agreement. Executive agrees, in the event of a dispute under this Section 5.1, to submit to a physical examination by a licensed physician selected by the Board. 5.2. Death. The Employment Term shall terminate in the event of Executive's death. In such event, NUSCO shall pay to Executive's executors, legal representatives or administrators, as applicable, an amount equal to the installment of Executive's Base Salary set forth in Section 1.4 hereof for the month in which Executive dies. In addition, Executive's estate shall be entitled to receive (i) any other amounts earned, accrued or owing but not yet paid under Section 1 above and (ii) any other benefits in accordance with the terms of any applicable plans and programs of the Company. Otherwise, the Company shall have no further liability or obligation under this Agreement to Executive's executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through Executive. 5.3. Cause. NUSCO may terminate the Employment Term, at any time, for "cause" upon written notice, in which event all payments under this Agreement shall cease, except for Base Salary to the extent already accrued, and no Target Benefit shall be due under the Supplemental Plan, but Executive shall remain entitled to the Make-Whole Benefit under the Supplemental Plan, but only to the extent not modified by the terms of this Agreement, and any other benefits in accordance with the terms of any applicable plans and programs of the Company. For purposes of this Agreement, Executive's employment may be terminated for "cause" if (i) Executive is convicted of a felony, (ii) in the reasonable determination of the Board, Executive has (x) committed an act of fraud, embezzlement, or theft in connection with Executive's duties in the course of Executive's employment with the Company, (y) caused intentional, wrongful damage to the property of the Company or intentionally and wrongfully disclosed Confidential Information, or (z) engaged in gross misconduct or gross negligence in the course of Executive's employment with the Company or (iii) Executive materially breached Executive's obligations under this Agreement and shall not have remedied such breach within 30 days after receiving written notice from the Board specifying the details thereof. For purposes of this Agreement, an act or omission on the part of Executive shall be deemed "intentional" only if it was not due primarily to an error in judgment or negligence and was done by Executive not in good faith and without reasonable belief that the act or omission was in the best interest of the Company. 5.4. Termination Without Cause and Non-Renewal. (a) NUSCO may remove Executive, at any time, without cause from the position in which Executive is employed hereunder (in which case the Employment Term shall be deemed to have ended) upon not less than 60 days' prior written notice to Executive; provided, however, that, in the event that such notice is given, Executive shall be under no obligation to render any additional services to the Company and, subject to the provisions of Section 3 hereof, shall be allowed to seek other employment. Upon any such removal or if NUSCO informs Executive that the Agreement will not be renewed after March 31, 2004 or at the end of any subsequent renewal period, Executive shall be entitled to receive, as liquidated damages for the failure of the Company to continue to employ Executive, only the amount due to Executive under the Company's then current severance pay plan for employees. No other payments or benefits shall be due under this Agreement to Executive, but Executive shall be entitled to any other benefits in accordance with the terms of any applicable plans and programs of the Company. Notwithstanding anything in this Agreement to the contrary, on or after Executive attains age 65, no action by the Company shall be treated as a removal from employment or non-renewal if on the effective date of such action Executive satisfies all of the requirements for the executive or high policy-making exception to applicable provisions of state and federal age discrimination legislation. (b) Notwithstanding the provisions of Section 5.4(a) (other than the last sentence), in the event that Executive executes a written release upon such removal or non-renewal, substantially in the form attached hereto as Annex 1, (the "Release"), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive's employment by the Company (other than any entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued a benefit), or the termination thereof, Executive shall be entitled to receive, in lieu of the payment described in subsection (a) hereof, which Executive agrees to waive, (i) as liquidated damages for the failure of the Company to continue to employ Executive, a single cash payment, within 30 days after the effective date of the removal or non-renewal, equal to Executive's Base Compensation, as defined in Section 6.1(b) below, which shall not constitute a "severance benefit" to Executive for purposes of the Target Benefit under the Supplemental Plan; (ii) for a period of two years following the end of the Employment Term, Executive and Executive's spouse and dependents shall be eligible for a continuation of those Benefit Coverages, as in effect at the time of such termination or removal, and as the same may be changed from time to time, as if Executive had been continued in employment during said period or to receive cash in lieu of such benefits or premiums, as applicable, where such Benefit Coverages may not be continued (or where such continuation would adversely affect the tax status of the plan pursuant to which the Benefit Coverage is provided) under applicable law or regulations; (iii) any other amounts earned, accrued or owing but not yet paid under Section 1 above; (iv) any other benefits in accordance with the terms of any applicable plans and programs of the Company and a payment equal to any unused vacation; (v) as additional consideration for the non-competition and non- solicitation covenant contained in Section 3, a single cash payment, within 30 days after the effective date of the removal or non-renewal, equal to Executive's Base Compensation, as defined in Section 6.1(b) below, which shall not constitute a "severance benefit" to Executive for purposes of the Target Benefit under the Supplemental Plan; and (vi) Under the Supplemental Plan, Executive shall be entitled to receive a Target Benefit and a Make-Whole Benefit commencing on the first day of any month following Executive's Termination, whether or not Executive has then satisfied the requirements for early, normal or deferred retirement under, or is then entitled to receive a vested benefit under, the Company's Retirement Plan, using the Termination Date as the "date of retirement" contemplated by Section IV(b) of the Supplemental Plan; Executive's years of service with the Company through the 24th month following the Termination Date shall be taken into account in determining the amount of the Target Benefit and the Make-Whole Benefit and 24 months shall be added to Executive's age for purposes of determining the reduction in such Benefits, if any, to reflect early commencement, utilizing the early commencement factor for Executive's age and years of service, each as so modified, set forth in the Company's Retirement Plan as in effect on the Termination Date or, if there is no such factor for Executive's age as so modified as of the Termination Date, a full actuarial reduction for Executive's age as so modified, as determined by the enrolled actuary for the Retirement Plan; and (vii) All stock option grants, to the extent not already vested prior to the removal or non-renewal, shall be fully vested and exercisable or paid as if Executive had remained actively employed by the Company, and had satisfied all time requirements as to exercise, including the right of exercise, where appropriate, within 36 months after the removal or non-renewal. 5.5. Voluntary Termination. Executive may voluntarily terminate the Employment Term upon 30 days' prior written notice for any reason. In such event, after the effective date of such termination, no further payments shall be due under this Agreement except that Executive shall be entitled to any benefits due in accordance with the terms of any applicable plan and programs of the Company. 6. Payments Upon a Change in Control. 6.1. Definitions. For all purposes of this Section 6, the following terms shall have the meanings specified in this Section 6.1 unless the context otherwise clearly requires: (a) "Affiliate" shall mean an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (b) "Base Compensation" shall mean, for a calendar year, Executive's annualized Base Salary as would be reported for federal income tax purposes on Form W-2 for such calendar year, together with any and all salary reduction authorized amounts under any of the Company's benefit plans or programs for such calendar year, and all short-term incentive compensation at the target level to be paid to Executive in all employee capacities with the Company attributable to such calendar year and taxable in the following calendar year. "Base Compensation" shall be the higher of (i) Base Compensation for the calendar year in which occurs the Change of Control or, if no Change of Control occurs, the calendar year in which occurs the involuntary termination; or (ii) Base Compensation for the full calendar year immediately prior thereto. "Base Compensation" shall not include the value of any stock options, performance units, or other elements of Long-Term Incentive Compensation or any exercise thereunder. (c) "Change of Control" shall mean the happening of any of the following: (i) When any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company, its Affiliates, or any Company employee benefit plan (including any trustee of such plan acting as trustee), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of NU representing more than 20% of the combined voting power of either (i) the then outstanding common shares of NU (the "Outstanding Common Shares") or (ii) the then outstanding voting securities of NU entitled to vote generally in the election of directors (the "Voting Securities"); or (ii) Individuals who, as of the beginning of any twenty-four month period, constitute the Trustees (the "Incumbent Trustees") cease for any reason to constitute at least a majority of the Trustees or cease to be able to exercise the powers of the majority of the Trustees, provided that any individual becoming a trustee subsequent to the beginning of such period whose election or nomination for election by NU's shareholders was approved by a vote of at least a majority of the trustees then comprising the Incumbent Trustees shall be considered as though such individual were a member of the Incumbent Trustees, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Trustees of NU (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Consummation by NU of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Common Shares and Voting Securities immediately prior to such Business Combination do not, following consummation of all transactions intended to constitute part of such Business Combination, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation, business trust or other entity resulting from or being the surviving entity in such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Outstanding Common Shares and Voting Securities, as the case may be; or (iv) Consummation of a complete liquidation or dissolution of NU or sale or other disposition of all or substantially all of the assets of NU other than to a corporation, business trust or other entity with respect to which, following consummation of all transactions intended to constitute part of such sale or disposition, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Shares and Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Common Shares and Voting Securities, as the case may be, immediately prior to such sale or disposition. (d) "Termination Date" shall mean the date of receipt of a Notice of Termination of this Agreement or any later date specified therein. (e) "Termination of Employment" shall mean the termination of Executive's actual employment relationship with the Company, including a failure to renew the Agreement after March 31, 2004 or at the end of any subsequent renewal period, in either case occasioned by the Company's action. (f) "Termination upon a Change of Control" shall mean a Termination of Employment during the period beginning on the earlier of (a) approval by the shareholders of NU of a Change of Control or (b) consummation of a Change of Control and, in either case, ending on the second anniversary of the consummation of the transaction that constitutes the Change of Control (or if such period started on shareholder approval and after such shareholder approval the Trustees abandon the transaction, on the date the Trustees abandoned the transaction) either: (i) initiated by the Company for any reason other than Executive's (w) disability, as described in Section 5.1 hereof, (x) death, (y) retirement on or after attaining age 65, or (z) "cause," as defined in Section 5.3 hereof, or (ii) initiated by Executive (A) upon any failure of the Company materially to comply with and satisfy any of the terms of this Agreement, including any significant reduction by the Company of the authority, duties or responsibilities of Executive, any reduction of Executive's compensation or benefits as in effect immediately prior to the Change of Control, or the assignment to Executive of duties which are materially inconsistent with the duties of Executive's position as defined in Section 1.2 above, or (B) if Executive is transferred, without Executive's written consent, to a location that is more than 50 miles from Executive's principal place of business immediately preceding such approval or consummation; provided, that the imposition on Executive following a Change of Control of a limitation of Executive's scope of authority such that Executive's responsibilities relate primarily to a company or companies whose common equity is not publicly held shall be considered a "significant reduction by the Company of the authority, duties or responsibilities of Executive" for the purposes hereof. Notwithstanding the foregoing, for purposes of this definition: (i) a Termination of Employment which occurs prior to consummation of a Change of Control shall not constitute a Termination upon a Change of Control, as determined above, unless it is specifically approved by the Trustees in their sole discretion; and (ii) a Termination initiated by Executive prior to consummation of a Change of Control shall not constitute a Termination upon a Change of Control if the failure, reduction, assignment or transfer is determined by the Trustees to be unrelated to the impending Change of Control. 6.2. Notice of Termination. Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for a Termination of Employment and the applicable provision hereof, and (iii) if the Termination Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall not be more than 15 days after the giving of such notice). 6.3. Payments upon Termination. Subject to the provisions of Sections 6.6 and 6.7 hereof, in the event of Executive's Termination upon a Change of Control, the Company agrees (a) in the event Executive executes the Release required by Section 5.4(b), to pay to Executive, in a single cash payment, within thirty days after the Termination Date, two multiplied by Executive's Base Compensation and, in addition, all amounts, benefits and Benefit Coverages described in Section 5.4(b)(ii), (iii), (iv) and (v), provided that in (ii) Benefit Coverages shall continue for three years instead of two, or (b) in the event Executive fails or refuses to execute the Release required by Section 5.4(b), to pay to Executive, in a single cash payment, within thirty days after the Termination Date, the amount due under Section 5.4(a) above and, in addition, all other amounts and benefits described in Section 5.4(a). 6.4. Other Payments, Supplemental Plan, Stock Option and Stock Grants, etc. Subject to the provisions of Sections 6.6 and 6.7 hereof, in the event of Executive's Termination upon a Change of Control, and the execution of the Release required by Section 5.4(b): (a) Under the Supplemental Plan, Executive shall be entitled to a Target Benefit and a Make-Whole Benefit commencing as provided below, whether or not Executive has then satisfied the requirements for early, normal or deferred retirement under, or is then entitled to receive a vested benefit under the Company's Retirement Plan or has attained age 60, using the Termination Date as the "date of retirement" contemplated by Section IV(b) of the Supplemental Plan. There shall be an actuarial reduction in the event the Target Benefit and Make-Whole Benefit commence prior to age 65, if at the Termination Date Executive has not yet attained age 52, or if at the Termination Date Executive's attained age and service for retirement benefit calculations do not total at least 85 years. The actuarial reduction shall be 2% for each year younger than age 65 to age 60, if applicable, 3% for each year younger than age 60 to age 55 and 4% for each year younger than 55, unless actuarial reduction factors more favorable to Executive are adopted in the Retirement Plan, in which case those factors shall apply. Executive's years of service with the Company through the 36th month following the Termination Date shall be taken into account in determining the amount of the Target Benefit and Make-Whole Benefit and 36 months shall be added to Executive's age for purposes of determining Executive's eligibility for both such Benefits and the actuarial reduction under the Plan as modified herein. Executive shall determine the form of payment in which the Target Benefit and Make-Whole Benefit shall be paid, in accordance with the terms of the Supplemental Plan or may elect to receive a single sum payment equal to the then actuarial present value (computed using the 1983 GAM (50%/Male/50%/Female) Mortality Table and at an interest rate equal to the discount rate used in the Retirement Plan's previous year's FASB 87 accounting) of the amount of the Target Benefit and Make-Whole Benefit as determined in accordance with the first three sentences of this subsection (a). Payment shall commence or be made within 30 days after the Termination Date or on any date thereafter, as specified by Executive in a written election. Such election may be made at any time and amended at any time but any election or amendment, other than one made within 30 days of the Effective Date, shall be ineffective if made within six months prior to the Termination Date. In the absence of any election or determination provided for herein, the terms of the Supplemental Plan shall govern the form and time of payment. (b) Executive's age and years of service with the Company through the 36th month following the Termination Date shall be taken into account in determining Executive's eligibility for benefits under the Company's retiree health plan. Cost sharing under the Company's retiree health plan shall be based on the greater of age 55 or the Executive's actual age on the Termination Date. If the additional 36 months of age and service do not qualify Executive to receive benefits under the Company's retiree health plan, Executive shall, as of the expiration of the benefits continuation period provided for in Section 6.3, be eligible to purchase health benefits at COBRA rates until Executive attains age 55, at which time Executive shall be eligible for benefits under the Company's retiree health plan. (c) Unless the Compensation Committee of the Northeast Utilities Board of Trustees comprises the same members as those on the Committee immediately before the Change of Control and determines otherwise, (i) all stock option grants previously granted to Executive, to the extent not already vested prior to such occurrence, shall be fully vested and immediately exercisable as if Executive had satisfied all requirements as to exercise, including the right of exercise, where appropriate, within 36 months of such occurrence and, if the Change of Control results in the Voting Securities of NU ceasing to be traded on a national securities exchange or though the national market system of the National Association of Securities Dealers Inc., the value of a share of stock on the day the option is exercised shall be deemed to be the closing price on the day such Voting Securities cease trading; and (ii) if NU is not the surviving corporation (or survives only as asubsidiary of another corporation), those portions of any such options that have not been exercised shall be assumed by, or replaced with comparable options or rights by, the surviving corporation. Notwithstanding the foregoing, such Committee (if composed of the same members as those on the Committee immediately before the Change of Control) may require Executive to surrender the remainder of any or all such options, in each case in exchange for a payment by the Company, in cash or common shares as determined by the Committee, in an amount equal to the amount by which the then fair market value of the common shares subject to such option exceeds the exercise price per share of such option, or, after giving Executive an opportunity to exercise such option, terminate the option at such time as the Committee deems appropriate. 6.5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive's continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by the Company and for which Executive may qualify; provided, however, that if Executive becomes entitled to and receives all of the payments provided for in this Agreement, Executive hereby waives Executive's right to receive payments under any severance plan or similar program applicable to all employees of the Company. 6.6. Certain Increase in Payments. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), Executive shall be paid an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive after deduction of any excise tax imposed under Section 4999 of the Code, and any federal, state and local income and employment tax and excise tax imposed upon the Gross-Up Payment shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income tax and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the Termination Date, net of the maximum reduction in federal income taxes that may be obtained from the deduction of such state and local taxes. (b) All determinations to be made under this Section 6 shall be made by the Company's independent public accountant immediately prior to the Change of Control (the "Accounting Firm"), which firm shall provide its determinations and any supporting calculations both to the Company and Executive within 10 days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and Executive. Within five days after the Accounting Firm's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of Executive such amounts as are then due to Executive under this Agreement. (c) In the event that upon any audit by the Internal Revenue Service, or by a state or local taxing authority, of the Payment or Gross-Up Payment, a change is finally determined to be required in the amount of taxes paid by Executive, appropriate adjustments shall be made under this Agreement such that the net amount which is payable to Executive after taking into account the provisions of Section 4999 of the Code shall reflect the intent of the parties as expressed in subsection (a) above, in the manner determined by the Accounting Firm. (d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses resulting from or relating to its determinations pursuant to subsections (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm. 6.7 Changes to Sections 6.3 and 6.4. The payments, benefits and other compensation provided under Sections 6.3 and 6.4 may be revised, in the sole discretion of the Board, after the expiration of two years following written notice to Executive of the Board's intention to do so and the changes to be made; provided, however, that no revision may be made that would reduce the payments, benefits and other compensation below those provided under Section 5.4 in the event Executive's employment is terminated without cause or this Agreement is not renewed; and provided, further, that no such notice may be given and no such revision may become effective following a Change of Control. Notice under this Section 6.7 shall not constitute a non-renewal or removal of Executive, nor shall any such actual revision be grounds for a determination that this Agreement is not being renewed or that Executive has been removed, for purposes of Section 5.4. 7. Survivorship. The respective rights and obligations of the parties under this Agreement shall survive any termination of Executive's employment to the extent necessary to the intended preservation of such rights and obligations. 8. Mitigation. Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other mployment or otherwise and there shall be no offset against amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain. 9. Arbitration; Expenses. In the event of any dispute under the provisions of this Agreement other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in the City of Hartford, Connecticut in accordance with National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by the Company and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable (except as provided in Section 52-418 of the Connecticut General Statutes) and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. If Executive prevails on any material issue which is the subject of such arbitration or lawsuit, the Company shall be responsible for all of the fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration (including the Company's and Executive's reasonable attorneys' fees and expenses). Otherwise, each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys' fees and expenses) and shall share the fees of the American Arbitration Association. 10. Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company, to: Northeast Utilities Service Company P.O. Box 270 Hartford, CT 06141-0270 Attention: Vice President, Secretary and General Counsel If to Executive, to: Cheryl W. Grise 24 Stratford Rd West Hartford, CT 06117 or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 11. Contents of Agreement; Amendment and Assignment. (a) This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer and by Executive. (b) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Executive under this Agreement are of a personal nature and shall not be assignable or delegatable in whole or in part by Executive. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the extent the Company would be required to perform if no such succession had taken place. 12. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. 13. Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. 14. Beneficiaries/References. Executive shall be entitled, to he extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable under this Agreement following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of Executive's incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to Executive's beneficiary, estate or other legal representative. 15. Miscellaneous. All section headings used in this Agreement are for convenience only. This Agreement may be executed in counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 16. Withholding. The Company may withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation. Executive shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement. 17. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Connecticut without giving effect to any conflict of laws provisions. 18. Adoption by Affiliates; Obligations. The obligations under this Agreement shall, in the first instance, be paid and satisfied by NUSCO; provided, however, that NUSCO will use its best efforts to cause NU and each entity in which NU (or its successors or assigns) now or hereafter holds, directly or indirectly, more than a 50 percent voting interest to approve and adopt this Agreement and, by such approval and adoption, to be bound by the terms hereof as though a signatory hereto. If NUSCO shall be dissolved or for any other reason shall fail to pay and satisfy the obligations, each individual such entity thereafter shall be jointly and severally liable to pay and satisfy the obligations to Executive. 19. Establishment of Trust. The Company may establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy any of its obligations under this Agreement. Funding of such trust fund shall be subject to the Board's discretion, as set forth in the agreement pursuant to which the fund will be established. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. NORTHEAST UTILITIES SERVICE COMPANY /s/ Cheryl W. Grise By /s/ Michael G. Morris Executive Date: April 10, 2003 Date: April 10, 2003 EX-15 5 exhibit15.txt EXHIBIT 15 Exhibit 15 To the Board of Trustees and Shareholders of Northeast Utilities We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Northeast Utilities and subsidiaries for the periods ended March 31, 2003 and 2002, as indicated in our report dated May 9, 2003; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, is incorporated by reference in Registration Statement Nos. 33-34622, 333-55142 and 33-40156 on Forms S-3 and Nos. 33-44814, 33-63023, 333-52413 and 333- 52415 on Forms S-8 of Northeast Utilities. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Hartford, Connecticut May 9, 2003 EX-99.1 6 nuexhibit991.txt NU EXHIBIT Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Northeast Utilities (the registrant) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission (the Report), we, Michael G. Morris, Chairman, President and Chief Executive Officer of the registrant and John H. Forsgren, Vice Chairman, Executive Vice President and Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the registrant. /s/ Michael G. Morris (Signature) Michael G. Morris Chairman, President and Chief Executive Officer /s/ John H. Forsgren (Signature) John H. Forsgren Vice Chairman, Executive Vice President and Chief Financial Officer May 9, 2003 A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.1 7 clpexhibit99.txt CL&P EXHIBIT Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Connecticut Light and Power Company (the registrant) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission (the Report), we, Cheryl W. Grise, Chief Executive Officer of the registrant and John H. Forsgren, Executive Vice President and Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the registrant. /s/ Cheryl W. Grise (Signature) Cheryl W. Grise Chief Executive Officer /s/ John H. Forsgren (Signature) John H. Forsgren Executive Vice President and Chief Financial Officer May 9, 2003 A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.1 8 psnhexhibit.txt PSNH EXHIBIT Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Public Service Company of New Hampshire (the registrant) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission (the Report), we, Cheryl W. Grise, Chief Executive Officer of the registrant, and John H. Forsgren, Executive Vice President and Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the registrant. /s/ Cheryl W. Grise (Signature) Cheryl W. Grise Chief Executive Officer /s/ John H. Forsgren (Signature) John H. Forsgren Executive Vice President and Chief Financial Officer May 9, 2003 A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.1 9 wmecoexhibit.txt WMECO EXHIBIT Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Western Massachusetts Electric Company (the registrant) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission (the Report), we, Cheryl W. Grise, Chief Executive Officer of the registrant, and John H. Forsgren, Executive Vice President and Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the registrant. /s/ Cheryl W. Grise (Signature) Cheryl W. Grise Chief Executive Officer /s/ John H. Forsgren (Signature) John H. Forsgren Executive Vice President and Chief Financial Officer May 9, 2003 A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----