-----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, DSva0TfF6EsP1D283SdOAjjmYP8mq7k8Nn1JU5xdnCG5gDMKAjI1d1R3Cd5wD3mb se7smdfK5OcdRQ+MAJbi9A== 0000072741-01-500141.txt : 20020410 0000072741-01-500141.hdr.sgml : 20020410 ACCESSION NUMBER: 0000072741-01-500141 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 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: 1780210 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0010 BUSINESS PHONE: 4137855871 MAIL ADDRESS: STREET 1: 107 SELDON ST CITY: BERLIN STATE: CT ZIP: 06037-1616 10-Q 1 september2001form10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ 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) 1000 Elm Street Manchester, New Hampshire 03105-0330 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 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 October 31, 2001 - ------------------------ ------------------------------- Northeast Utilities Common shares, $5.00 par value 132,037,520 shares The Connecticut Light and Power Company Common stock, $10.00 par value 7,584,884 shares Public Service Company of New Hampshire Common stock, $1.00 par value 388 shares Western Massachusetts Electric Company Common stock, $25.00 par value 509,696 shares GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report: COMPANIES CL&P............................ The Connecticut Light and Power Company NAEC............................ North Atlantic Energy Corporation NU.............................. Northeast Utilities NU system....................... The Northeast Utilities system companies, including NU and its wholly owned operating subsidiaries: CL&P, PSNH, WMECO, NAEC, and Yankee Gas PSNH............................ Public Service Company of New Hampshire Select Energy................... Select Energy, Inc. WMECO........................... Western Massachusetts Electric Company Yankee.......................... Yankee Energy System, Inc. Yankee Gas...................... Yankee Gas Services Company NUCLEAR UNIT Seabrook........................ Seabrook Unit No. 1, a 1,148 megawatt nuclear electric generating unit completed in 1986; Seabrook went into service in 1990. REGULATORS DPUC............................ Connecticut Department of Public Utility Control FERC............................ Federal Energy Regulatory Commission NHPUC........................... New Hampshire Public Utilities Commission OTHER EPS............................. Earnings per share FASB............................ Financial Accounting Standards Board NU 2000 Form 10-K............... The NU system combined 2000 Form 10-K as filed with the Securities and Exchange Commission O&M............................. Operation and maintenance SFAS............................ Statement of Financial Accounting Standards 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. 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 - September 30, 2001 and December 31, 2000.............. 2 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 2001 and 2000........................... 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001 and 2000......... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations......... 6 Report of Independent Public Accountants.............. 20 The Connecticut Light and Power Company and Subsidiaries Consolidated Balance Sheets - September 30, 2001 and December 31, 2000.............. 22 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 2001 and 2000........................... 24 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001 and 2000......... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations......... 26 Public Service Company of New Hampshire and Subsidiaries Consolidated Balance Sheets - September 30, 2001 and December 31, 2000.............. 32 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 2001 and 2000........................... 34 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001 and 2000......... 35 Management's Discussion and Analysis of Financial Condition and Results of Operations......... 36 Western Massachusetts Electric Company and Subsidiary Consolidated Balance Sheets - September 30, 2001 and December 31, 2000.............. 42 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 2001 and 2000........................... 44 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001 and 2000......... 45 Management's Discussion and Analysis of Financial Condition and Results of Operations......... 46 Notes to Financial Statements (unaudited - all companies).. 50 Part II. Other Information Item 1. Legal Proceedings................................ 63 Item 6. Exhibits and Reports on Form 8-K................. 63 Signatures........................................................... 66 NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) ASSETS - ------ Property, Plant and Equipment, at Cost: Electric............................................ $ 6,036,587 $ 9,370,176 Gas and other....................................... 870,179 861,727 ---------------- ---------------- 6,906,766 10,231,903 Less: Accumulated provision for depreciation..... 3,466,409 7,041,279 ---------------- ---------------- 3,440,357 3,190,624 Construction work in progress....................... 259,024 228,330 Nuclear fuel, net................................... 25,022 128,261 ---------------- ---------------- Total net property, plant and equipment.......... 3,724,403 3,547,215 ---------------- ---------------- Other Property and Investments: Nuclear decommissioning trusts, at market........... 59,971 740,058 Other, at cost...................................... 346,028 199,768 ---------------- ---------------- 405,999 939,826 ---------------- ---------------- Current Assets: Cash and cash equivalents........................... 130,913 200,017 Investments in securitizable assets................. 35,592 98,146 Receivables, net.................................... 699,061 472,863 Unbilled revenues................................... 78,959 121,090 Fuel, materials and supplies, at average cost....... 103,566 163,711 Special deposits.................................... 78,943 2,624 Prepayments and other............................... 138,709 91,904 ---------------- ---------------- 1,265,743 1,150,355 ---------------- ---------------- Deferred Charges: Regulatory assets .................................. 4,046,608 3,910,801 Goodwill and other purchased intangible assets, net. 323,476 324,389 Prepaid pension..................................... 206,803 139,546 Other .............................................. 319,840 205,017 ---------------- ---------------- 4,896,727 4,579,753 ---------------- ---------------- Total Assets......................................... $ 10,292,872 $ 10,217,149 ================ ================
The accompanying notes are an integral part of these financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common shareholders' equity: Common shares, $5 par value - authorized 225,000,000 shares; 148,890,640 shares issued and 132,971,030 shares outstanding in 2001 and 148,781,861 shares issued and 143,820,405 shares outstanding in 2000.............................. $ 744,453 $ 693,345 Capital surplus, paid in.......................... 882,819 927,059 Temporary equity from stock forward............... - 215,000 Deferred contribution plan - employee stock ownership plan.................................. (105,321) (114,463) Retained earnings................................. 644,886 495,873 Accumulated other comprehensive (loss)/income..... (32,986) 1,769 ---------------- ---------------- Total common shareholders' equity.......... 2,133,851 2,218,583 Preferred stock..................................... 116,200 151,200 Long-term debt...................................... 1,930,620 2,029,593 ---------------- ---------------- Total capitalization....................... 4,180,671 4,399,376 ---------------- ---------------- Rate Reduction Bonds.................................. 2,118,400 - ---------------- ---------------- Minority Interest in Consolidated Subsidiary.......... - 100,000 ---------------- ---------------- Obligations Under Capital Leases...................... 16,990 47,234 ---------------- ---------------- Current Liabilities: Notes payable to banks.............................. 436,500 1,309,977 Long-term debt and preferred stock - current portion 24,437 340,041 Obligations under capital leases - current portion.. 838 112,645 Accounts payable.................................... 634,824 538,983 Accrued taxes....................................... 112,659 54,088 Accrued interest.................................... 93,344 41,131 Other............................................... 143,548 144,931 ---------------- ---------------- 1,446,150 2,541,796 ---------------- ---------------- Deferred Credits and Other Long-Term Liabilities: Accumulated deferred income taxes................... 1,409,294 1,585,494 Accumulated deferred investment tax credits......... 123,246 153,155 Decommissioning obligation - Millstone 1............ - 692,560 Deferred contractual obligations.................... 220,747 244,608 Other............................................... 777,374 452,926 ---------------- ---------------- 2,530,661 3,128,743 ---------------- ---------------- Commitments and Contingencies (Note 2) Total Capitalization and Liabilities.................. $ 10,292,872 $ 10,217,149 ================ ================
The accompanying notes are an integral part of these financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------------ 2001 2000 2001 2000 -------------- -------------- -------------- -------------- (Thousands of Dollars, except share information) Operating Revenues................................... $ 1,723,894 $ 1,581,947 $ 5,107,732 $ 4,379,241 -------------- -------------- -------------- -------------- Operating Expenses: Operation - Fuel, purchased and net interchange power....... 1,178,290 928,435 3,319,007 2,491,896 Other........................................... 184,815 223,137 592,757 638,634 Maintenance........................................ 59,733 59,847 208,152 181,337 Depreciation....................................... 43,562 58,153 154,082 177,491 Amortization of regulatory assets, net............. 104,468 75,010 900,459 188,460 Federal and state income taxes..................... 26,853 61,582 118,035 171,452 Taxes other than income taxes...................... 39,648 59,170 170,739 178,857 Loss/(gain) on sale of utility plant............... - 852 (643,909) 852 -------------- -------------- -------------- -------------- Total operating expenses...................... 1,637,369 1,466,186 4,819,322 4,028,979 -------------- -------------- -------------- -------------- Operating Income..................................... 86,525 115,761 288,410 350,262 -------------- -------------- -------------- -------------- Other Income/(Loss): Gain related to Millstone sale..................... - - 201,856 - Loss on share repurchase contracts................. - - (35,394) - Nuclear related costs.............................. - (971) - (19,344) Other, net......................................... 17,724 14,922 24,182 11,709 Income taxes....................................... 1,668 16,029 (47,929) 44,984 -------------- -------------- -------------- -------------- Other income, net............................. 19,392 29,980 142,715 37,349 -------------- -------------- -------------- -------------- Income before interest charges................ 105,917 145,741 431,125 387,611 -------------- -------------- -------------- -------------- Interest Charges: Interest on long-term debt......................... 30,995 47,953 109,906 156,137 Interest on rate reduction bonds................... 30,883 - 57,703 - Other interest..................................... 8,404 29,493 41,413 67,715 -------------- -------------- -------------- -------------- Interest charges, net......................... 70,282 77,446 209,022 223,852 -------------- -------------- -------------- -------------- Income after interest charges................. 35,635 68,295 222,103 163,759 Preferred Dividends of Subsidiaries.................. 1,004 2,752 6,145 11,423 -------------- -------------- -------------- -------------- Income before cumulative effect of accounting change........................... 34,631 65,543 215,958 152,336 Cumulative effect of accounting change, net of tax benefit of $14,908...................... - - (22,432) - -------------- -------------- -------------- -------------- Net Income........................................... $ 34,631 $ 65,543 $ 193,526 $ 152,336 ============== ============== ============== ============== Basic Earnings Per Common Share: Income before cumulative effect of accounting change................................ $ 0.26 $ 0.46 $ $1.57 $ $1.08 Cumulative effect of accounting change, net of tax benefit............................... - - (0.16) - -------------- -------------- -------------- -------------- Basic Earnings per Common Share...................... $ 0.26 $ 0.46 $ 1.41 $ 1.08 ============== ============== ============== ============== Fully Diluted Earnings Per Common Share: Income before cumulative effect of accounting change................................ $ 0.26 $ 0.45 $ $1.57 $ $1.08 Cumulative effect of accounting change, net of tax benefit............................... - - (0.16) - -------------- -------------- -------------- -------------- Fully Diluted Earnings Per Common Share.............. $ 0.26 $ 0.45 $ 1.41 $ 1.08 ============== ============== ============== ============== Basic Common Shares Outstanding (average)............ 133,540,631 143,535,147 137,120,689 140,829,337 ============== ============== ============== ============== Fully Diluted Common Shares Outstanding (average).... 133,869,227 144,189,458 137,457,694 141,449,402 ============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, --------------------------------- 2001 2000 --------------- -------------- (Thousands of Dollars) Operating Activities: Income after interest charges............................... $ 222,103 $ 163,759 Adjustments to reconcile to net cash flows provided by operating activities: Depreciation.............................................. 154,082 177,491 Deferred income taxes and investment tax credits, net..... (141,460) (28,326) Amortization of regulatory assets, net.................... 900,459 188,460 Net deferral of recoverable energy costs.................. (37,402) (5,457) (Gain)/loss on sale of utility plant...................... (643,909) 852 Cumulative effect of accounting change.................... (22,432) - Net other sources of cash................................. 18,269 6,310 Changes in working capital: Receivables and unbilled revenues, net.................... (184,067) (62,875) Fuel, materials and supplies.............................. 60,145 4,908 Accounts payable.......................................... 95,841 113,576 Accrued taxes............................................. 58,571 (37,913) Investments in securitizable assets....................... 62,554 44,985 Other working capital (excludes cash)..................... (72,294) (149,342) ---------------- -------------- Net cash flows provided by operating activities............... 470,460 416,428 ---------------- -------------- Investing Activities: Investments in plant: Electric, gas and other utility plant..................... (314,543) (218,766) Nuclear fuel.............................................. (3,502) (38,223) ---------------- -------------- Net cash flows used for investments in plant................ (318,045) (256,989) Investments in nuclear decommissioning trusts............... (119,272) (28,415) Net proceeds from the sale of utility plant................. 1,035,185 - Buyout/buydown of IPP contracts............................. (1,128,502) - Other investment activities, net............................ (225,203) (46,826) Payment for the purchase of Yankee, net of cash acquired.... - (260,347) ---------------- -------------- Net cash flows used in investing activities................... (755,837) (592,577) ---------------- -------------- Financing Activities: Issuance of common shares................................... 1,751 2,699 Repurchase of common shares................................. (241,589) - Issuance of long-term debt.................................. 263,000 26,477 Issuance of rate reduction bonds............................ 2,118,400 - Net (decrease)/increase in short-term debt.................. (873,477) 779,338 Reacquisitions and retirements of long-term debt............ (660,385) (469,095) Reacquisitions and retirements of preferred stock........... (60,768) (126,039) Retirement of monthly income preferred securities........... (100,000) - Retirement of capital lease obligation...................... (180,000) - Cash dividends on preferred stock........................... (6,145) (11,423) Cash dividends on common shares............................. (44,514) (42,990) ---------------- -------------- Net cash flows provided by financing activities............... 216,273 158,967 ---------------- -------------- Net decrease in cash and cash equivalents..................... (69,104) (17,182) Cash and cash equivalents - beginning of period............... 200,017 255,154 ---------------- -------------- Cash and cash equivalents - end of period..................... $ 130,913 $ 237,972 ================ ==============
The accompanying notes are an integral part of these 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 First and Second Quarter 2001 Form 10-Qs, current reports on Form 8-K dated July 10, 2001, July 24, 2001, October 11, 2001, October 23, 2001, and October 29, 2001, and the 2000 Form 10-K. FINANCIAL CONDITION Overview Northeast Utilities (NU) reported third quarter 2001 earnings of $34.6 million, or $0.26 per share on a fully diluted basis, compared with earnings of $65.5 million, or $0.45 per share on a fully diluted basis, for the same period of 2000. The decline in third quarter 2001 results is attributable to the decline, which had been expected, in the earnings at NU's regulated businesses as a result of industry restructuring, rate reductions, the sale of the Millstone nuclear units, and losses at NU's competitive energy subsidiaries. Strong third quarter 2000 earnings were significantly impacted by positive nuclear performance in 2000. The operations of the Millstone units contributed approximately $13 million of earnings in the third quarter of 2000, but no earnings during the same period of 2001, as a result of the aforementioned sale. In addition, third quarter 2001 results for The Connecticut Light and Power Company (CL&P) were negatively affected by a $21 million noncash reduction in annual rates that took effect in late June 2001. Earnings at Public Service Company of New Hampshire (PSNH) and North Atlantic Energy Corporation (NAEC) totaled $21.8 million in the third quarter of 2001, compared with $36.1 million in the third quarter of 2000. Lower earnings at PSNH and NAEC resulted primarily from New Hampshire electric utility restructuring, which included retail rate decreases of 16 percent since October 1, 2000, and were partially offset by lower interest and amortization costs. Partially offsetting the lower level of earnings was a lower average share count resulting from continuing share repurchases, as well as higher regulated electric sales. Primarily as a result of more favorable weather conditions, third quarter 2001 retail sales rose 4.7 percent from the same period of 2000. For the nine months ended September 30, 2001, regulated retail electric sales were up 3.0 percent over the first nine months of 2000. The higher regulated retail electric sales added $0.05 per share to earnings in the third quarter of 2001, compared with the same period of 2000, and $0.10 per share for the first nine months of 2001. As a result of industry restructuring, changes in sales have less of an impact on the regulated companies' net income, as approximately two-thirds of their rates are fully reconciling. NU's competitive energy subsidiaries lost $9.7 million, or $0.07 per share, in the third quarter of 2001, compared with earnings of $4.5 million, or $0.03 per share, in the third quarter of 2000. The earnings of Select Energy, Inc. (Select Energy), NU's competitive energy marketing subsidiary, were negatively impacted by high purchased-power costs during extremely hot weather in the latter part of July 2001 and in the first half of August 2001. For the nine months ended September 30, 2001, NU earned $193.5 million, or $1.41 per share on a fully diluted basis, compared with earnings of $152.3 million, or $1.08 per share on a fully diluted basis, for the same period of 2000. Improved results for the nine months ended September 30, 2001, include an after-tax gain of $124.8 million, or $0.91 per share, in the first quarter of 2001 associated with the sale of the Millstone units to Dominion Resources, Inc. (Dominion). Excluding significant nonrecurring items, such as the gain related to the sale of the Millstone units, the adoption of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, and an after-tax mark-to-market loss of $35.4 million, or $0.26 per share, associated with the repurchase of NU shares in the first half of 2001, NU earned $126.5 million, or $0.92 per share, in the first nine months of 2001. The primary reasons for the decline in recurring earnings for the nine months ended September 30, 2001, compared with the same period in 2000, were the strong operating performance of the Millstone units in 2000, and retail rate decreases in late 2000 and 2001. For 2001, NU expects to earn toward the lower end of its previously announced earnings range of $1.35 to $1.50 per share, excluding significant nonrecurring items, primarily as a result of a higher than projected average share count. NU's future earnings per share will benefit from the ongoing repurchase of its common shares. The accretive impact of those repurchases added approximately $0.02 per share to NU's third quarter earnings in 2001, compared with the same period of 2000. NU estimates that share repurchases will continue to benefit year-over-year earnings per share comparisons in the upcoming quarters, assuming NU continues to repurchase its shares at the same rate at which it bought back shares in September 2001 and October 2001. During that time period, NU repurchased nearly 1 million shares per month under the NU Board of Trustees' July 2001 authorization to repurchase up to 15 million shares by July 2003. NU had approximately 133 million shares outstanding as of September 30, 2001, and has continued to repurchase shares in the fourth quarter of 2001. NU expects to continue repurchasing shares in 2002. The 2002 repurchases may be for several million shares, depending on other opportunities that may arise for the use of the cash. Future Outlook NU has essentially completed the restructuring of its electric utility companies. The generation assets of CL&P and Western Massachusetts Electric Company (WMECO) have been divested, with the divestiture of CL&P's and NAEC's ownership interests in Seabrook expected in late 2002. As NU enters a more competitive environment, it continues to look for ways to grow its regulated businesses and its unregulated business investments. These opportunities could have a significant impact on NU's future earnings. NU estimates that it will earn between $1.40 per share and $1.65 per share in 2002. One of the most significant variables in achieving projected 2002 earnings is the ability of Select Energy to meet its anticipated earnings growth. Select Energy's performance in 2002 will be largely determined by its ability to renew existing energy supply contracts, to secure new business, and to improve the performance of its wholesale electric supply contract with CL&P. Select Energy is contracted to provide 50 percent of the approximately 23 billion kilowatt-hour annual standard offer load of CL&P through December 31, 2003. That contract, which requires the sale of electricity to CL&P for approximately $0.045 per kilowatt-hour, has not been profitable for Select Energy since it took effect on January 1, 2000. Select Energy has already fully hedged its on-peak estimated energy requirements and has hedged most of its off-peak energy requirements to serve the CL&P contract in both 2002 and 2003. Also in 2002, NU expects to have a reduced benefit as a result of a lower pension credit. This is due to weaker equity markets, which have reduced the value of NU's pension investments. NU expects to record a pretax pension credit of approximately $71 million in 2002, compared to an estimated $100 million recorded in 2001. In the future, NU is targeting a return on equity for its regulated subsidiaries of between 10 percent and 13 percent. Currently, most of NU's regulated subsidiaries are achieving within that range of rate of return. NU seeks to achieve a minimum return on equity for its competitive energy subsidiaries of 15 percent over the life of its investments. NU has not yet achieved that level of return for those subsidiaries, taken as a whole. Liquidity As a result of the sale of the Millstone units in March 2001, and the securitization of CL&P, PSNH and WMECO stranded costs in the first five months of 2001, NU continued to maintain a high degree of liquidity through the third quarter of 2001. At no point during the quarter did any NU subsidiary borrow under their credit lines. Cash held by NU parent and CL&P was more than adequate to fund the short- term borrowing needs of all NU subsidiaries that required day-to-day borrowings. As of September 30, 2001, the NU system maintained $130.9 million of cash and cash equivalents. In part because of the NU system's liquidity, most of the NU system's credit ratings are currently being reviewed for possible upgrade. NU expects those reviews to be completed before the end of 2001. The liquidity of NU parent was further improved on October 18, 2001, when Northeast Generation Company (NGC) sold $440 million of senior secured bonds that are nonrecourse to NU. NGC used the proceeds and cash on hand to repay $346.5 million of bank debt, return $75 million to NU parent, fund a required debt service reserve, and pay various transaction costs. In conjunction with the sale of these bonds, NGC purchased a treasury lock at an average base yield of 5.14 percent to hedge a portion of the interest rate risk associated with these bonds. The $440 million includes $120 million of bonds that mature on October 15, 2005, at an interest rate of 4.998 percent, and $320 million of bonds that mature on October 15, 2026, at an interest rate of 8.812 percent. In November 2001, NAEC expects to extend for 364 days, $90 million of variable-rate bank notes that represent NAEC's sole outstanding debt. Also, in November, NU expects to renew $650 million in revolving credit lines, including $300 million to support CL&P, PSNH, WMECO, and Yankee Gas Services Company (Yankee Gas), and $350 million for the use of NU parent. PSNH has applied to the New Hampshire Public Utilities Commission (NHPUC) to refinance $287.5 million of tax-exempt bonds carrying interest rates of 7.65 percent and 7.5 percent. PSNH is considering using a combination of variable-rate and fixed-rate tax-exempt bonds for the refinancing. As a result of the current low interest rate environment, PSNH expects to save several million dollars annually in interest costs as a result of the refinancing. In mid-December 2001, Holyoke Water Power Company (HWP) is expected to complete the sale of 45 megawatts (MW) of hydroelectric generation facilities on and near the Connecticut River in Massachusetts, as well as certain distribution assets, to the City of Holyoke's Gas & Electric Department for approximately $17.5 million. In connection with that sale, HWP will likely repay approximately $38 million of outstanding debt. On September 28, 2001, NU paid a quarterly dividend of $0.125 per share, an increase of 25 percent from a quarterly dividend of $0.10 per share declared during the previous six quarters. On October 9, 2001, the NU Board of Trustees declared a $0.125 per share dividend for payment on December 31, 2001. NU anticipates increasing its dividend by approximately 10 percent annually and eventually paying out approximately 50 percent of the aggregate earnings of its regulated companies in the form of common dividends. Over the coming years, management expects PSNH, WMECO and NAEC to pay out substantially all of their earnings as dividends to the parent company. Dividends at CL&P and Yankee Gas may be significantly less should those companies receive regulatory approval for the major capital projects they have proposed. Competitive Energy Subsidiaries NU's competitive energy subsidiaries engage in a variety of energy- related activities, primarily in the competitive energy retail and wholesale commodity, marketing and services fields. In addition, these subsidiaries own and manage 1,481 MW of capacity, as well as provide services to the electric generation market and large commercial and industrial customers in the Northeast. NU's competitive energy subsidiaries earnings were essentially break even before the cumulative effect of an accounting change related to the adoption of SFAS No. 133, as amended, for the nine months ended September 30, 2001, compared with earnings of $8 million for the nine months ended September 30, 2000. Unconsolidated revenues for the competitive energy subsidiaries were $2.1 billion for the nine months ended September 30, 2001, compared with $1.5 billion for the nine months ended September 30, 2000. The increased revenues are the result of sales growth and higher energy prices. CL&P's standard offer purchases from Select Energy represented $495.3 million of the total competitive energy subsidiaries' revenues for the nine months ended September 30, 2001, compared with $485 million for the nine months ended September 30, 2000. These amounts are eliminated in consolidation. Competitive Energy Subsidiaries' Market and Other Risks NU's competitive energy subsidiaries, as major providers of electricity and natural gas, are exposed to certain market risks inherent in their business activities. The competitive energy subsidiaries enter into contracts of varying length of time to buy and sell energy commodities, primarily electricity, natural gas and oil. Market risk represents the risk of loss that may impact the companies' financial statements due to adverse changes in commodity market prices. The competitive energy subsidiaries manage their portfolio of contracts and assets to maximize value and minimize associated risks. The length of contracts to buy and sell energy vary in duration from daily/hourly to several years. At any point in time, the portfolio may be long (purchases exceed sales) or short (sales exceed purchases). Portfolio and risk management disciplines are used to manage exposures to market risks. Policies and procedures have been established to manage these risks. At market spot prices in effect at September 30, 2001, the portfolio had a positive mark-to-market position. There is significant volatility in the energy commodities market, and for certain of the energy products and contracts there has been limited liquidity. The position has increased in value due to the decline in energy prices in the region and new transactions entered into during the first nine months of 2001. Select Energy also engages in the trading of commodity derivatives, which are accounted for using the mark-to-market method under Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting for Energy Trading and Risk Management Activities." All other nontrading transactions are recognized when settled. For further information see Note 3, "Market Risk and Risk Management Instruments," and Note 4, "Comprehensive Income," to the consolidated financial statements. Business Development The NU system subsidiaries have proposed a number of capital projects that would significantly increase their investment in the electric transmission and natural gas distribution systems in Connecticut. CL&P has announced plans to invest approximately $520 million by the end of 2006 to construct two new 345,000 volt transmission lines from inland Connecticut into Norwalk, Connecticut and another $40 million to help rebuild an existing 138,000 volt transmission line beneath Long Island Sound. The investment in transmission lines and continued upgrading of the electric distribution system are expected to increase CL&P's net investment in electric plant by an estimated $231 million in 2001 and between $279 million and $353 million in each of the years 2002 through 2005. Additionally, NU has proposed building a new direct current transmission line by 2004 from Norwalk, Connecticut to western Long Island and has sought Federal Energy Regulatory Commission (FERC) approval to conduct an open season auction and negotiate final contracts for the scheduling rights on the line. The project's final size and cost will be determined after an auction process which NU plans to complete in early 2002. All of these projects are in the developmental or governmental approval stage, and management cannot yet determine whether the projects will be built as proposed. If current plans are implemented on schedule, NU would likely require additional external financing to construct these projects. If all of the transmission projects are built as proposed, the NU system's net investment in electric transmission would increase to nearly $1.5 billion by the end of 2006. Yankee Gas has proposed a significant expansion of its natural gas delivery system in Connecticut, costing up to an estimated $190 million through 2005. Yankee Gas also has proposed construction of a liquefied natural gas storage terminal in Connecticut at an estimated cost of between $50 million and $60 million. In July 2001, Yankee Gas filed an application with the Connecticut Department of Public Utility Control (DPUC) to increase customers' rates by an average of 7.64 percent, or $29 million, to support the proposed system reliability projects. A positive decision from the DPUC could result in Yankee Gas investing nearly $400 million in plant from 2002 through 2005. Yankee Gas has proposed an infrastructure recovery mechanism to allow recovery of certain system expansion costs on an annual basis. A negative decision would likely result in a considerable scaling back of those plans. If NU is able to complete the aforementioned capital investments, it anticipates that its net plant will increase from approximately $3.7 billion as of September 30, 2001, to nearly $6.5 billion at the end of 2006. Additionally, on October 2, 2001, NU announced that Select Energy reached an agreement to acquire Niagara Mohawk Energy Marketing (NMEM) from Niagara Mohawk Holdings, Inc. of Syracuse, New York for approximately $30 million, subject to adjustment at closing. NMEM, whose business is similar to that of Select Energy, has a significant presence in New York. NMEM's revenues are expected to exceed $600 million for the year ended December 31, 2001. In part because of the NMEM acquisition, NU's competitive energy subsidiaries' revenues are expected to increase to $3.5 billion in 2002 from $2.8 billion in 2001. The NMEM transaction is awaiting approval from the FERC and is expected to close before the end of 2001. NU management is seeking additional investment opportunities in acquiring generation in other power pools in the Northeast area of the United States, but has not yet identified any specific projects. Restructuring and Rate Matters Connecticut - CL&P: Beginning on August 2, 2001, the DPUC authorized CL&P to assess a charge of approximately $0.002 per kilowatt-hour on customer bills to collect deferred fuel costs. The charge will remain in effect through December 2003 and collect approximately $98.5 million over the 29-month period. On September 27, 2001, CL&P filed its application with the DPUC for approval of the disposition of the proceeds from the sale of the Millstone units to Dominion. This application described and requested DPUC approval for CL&P's treatment of its share of the proceeds from the sale. A decision from the DPUC is expected in the first half of 2002. On September 28, 2001, the DPUC issued a final order in CL&P's 2000 Competitive Transition Assessment (CTA)/System Benefits Charge (SBC) reconciliation docket. This order adjusted CL&P's 2002 revenue requirements by reducing the SBC rate by $21.3 million and ordering CL&P to adjust rates by a total of $42.4 million, inclusive of the $21.1 million adjustment addressed in CL&P's over-earnings docket, beginning on January 1, 2002. Any excess CTA/SBC recovery is to be used to accelerate recovery of stranded costs. Connecticut - Yankee Gas: In July 2001, Yankee Gas filed an application with the DPUC to increase customers' rates by an average of 7.64 percent. Yankee Gas requested the increase to fund system reliability projects and its proposed expansion and asked the DPUC to implement a mechanism to allow additional increases over the following three years, depending on the level of additional investment. A DPUC final decision on the Yankee Gas rate case is due January 2, 2002. New Hampshire: On July 27, 2001, PSNH filed an application with the NHPUC seeking the recovery of $209 million of deferred fuel and purchased power costs. The deferred costs are currently being collected through PSNH's existing $0.034 per kilowatt-hour Stranded Cost Recovery Charge. Hearings will begin in the spring of 2002. On October 22, 2001, the NHPUC approved the restructuring of a high- cost purchased power rate order for a wood-fired plant in New Hampshire. On November 1, 2001, the NHPUC orally approved a settlement providing for the buyout of another rate order for another wood-fired plant. Together, the two decisions will result in net present value savings of approximately $30 million over the original life of the rate orders. Under the state's electric industry restructuring law, PSNH is entitled to retain 20 percent of those savings, which could result in a pretax benefit of approximately $6 million. Massachusetts: During September 2001, WMECO issued a request for proposal to parties interested in supplying energy for WMECO's standard offer service beginning on January 1, 2002. In October 2001, the Massachusetts Department of Telecommunications and Energy approved a contract to serve approximately 600 MW of WMECO's standard offer service during calendar 2002. Based on WMECO's solicitation for bids, the price was fixed at $0.04829 per kilowatt-hour, a significant reduction from the average rate of approximately $0.07258 per kilowatt- hour that has been in effect in 2001. For information regarding commitments and contingencies related to restructuring and rate matters, see Note 2A, "Commitments and Contingencies - Restructuring and Rate Matters," to the consolidated financial statements. Nuclear Plant Performance and Other Matters Seabrook: Seabrook operated at a capacity factor of 83 percent through the first nine months of 2001. Since returning from a scheduled refueling outage on January 28, 2001, Seabrook operated at a capacity factor of 93 percent through September 30, 2001. Seabrook's next refueling outage is scheduled for May 2002. On September 28, 2001, the NHPUC and the DPUC announced that they had selected J.P. Morgan as the selling agent for Seabrook. Following due diligence on the part of prospective bidders and selection of a winning bidder, management expects a closing around the end of 2002. The NU system companies own 40.04 percent of Seabrook. Vermont Yankee: In August 2001, the owners of the Vermont Yankee nuclear power plant announced they would sell the unit to Entergy Corporation. The price will be $180 million, $145 million for the plant and $35 million for the nuclear fuel. NU subsidiaries own 16 percent of the unit, and under the terms of the sale, will continue to buy 16 percent of the plant's output through March 2012 at fixed prices. The sale requires several regulatory approvals and is scheduled to close during the first half of 2002. Millstone: On October 5, 2001, NU issued a report, following an extensive search, concerning two missing fuel pins at the retired Millstone 1 nuclear unit, which was sold to Dominion on March 31, 2001. As of September 30, 2001, costs related to this search totaled $6.2 million. The report concluded that the pins are currently located in one of four facilities licensed to store low or high-level nuclear waste and that they are not a threat to public health and safety. A follow-up review by the Nuclear Regulatory Commission commenced shortly after the report was filed. Other Matters Other Commitments and Contingencies: For further information regarding other commitments and contingencies, see Note 2, "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, 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 historical weather patterns, changes in laws, developments in legal or public policy doctrines, technological developments, and other presently unknown or unforeseen factors. RESULTS OF OPERATIONS The components of significant income statement variances for the third quarter of 2001 and the first nine months of 2001 are provided in the table below. Income Statement Variances (Millions of Dollars) 2001 over/(under) 2000 -------------------------- Third Nine Quarter Percent Months Percent ------- ------- ------ ------- Operating Revenues $ 142 9% $728 17% Operating Expenses: Fuel, purchased and net interchange power 250 27 827 33 Other operation (38) (17) (46) (7) Maintenance - - 27 15 Depreciation (15) (25) (23) (13) Amortization of regulatory assets, net 29 39 712 (a) Federal and state income taxes (35) (56) (54) (31) Taxes other than income taxes (20) (33) (8) (5) Gain on sale of utility plant - - (645) (a) ---- ---- ---- ---- Total operating expenses 171 12 790 20 ---- ---- ---- ---- Operating income (29) (25) (62) (18) ---- ---- ---- ---- Other Income/(Loss): Gain related to Millstone sale - - 202 (a) Loss on share repurchase contracts - - (35) (a) Nuclear related costs 1 (a) 19 (a) Other, net 3 19 12 (a) Income taxes (15) (90) (93) (a) ---- ---- ---- ---- Other income, net (11) (35) 105 (a) Interest charges, net (7) (9) (15) (7) Preferred dividends of subsidiaries (2) (64) (5) (46) ---- ---- ---- ---- Income before cumulative effect of accounting change (31) (47) 63 42 Cumulative effect of accounting change, net of tax benefit - - (22) (a) ---- ---- ---- ---- Net income $(31) (47)% $ 41 27% ==== ==== ==== ==== (a) Percent greater than 100. Comparison of the Third Quarter 2001 to the Third Quarter of 2000 - ----------------------------------------------------------------- Operating Revenues Total revenues increased by $142 million or 9 percent in the third quarter of 2001, compared with the same period in 2000, primarily due to higher revenues from the competitive energy companies ($198 million) and higher regulated retail revenues ($33 million), partially offset by lower wholesale revenues for the regulated subsidiaries ($88 million). The competitive energy companies' increase is primarily due to higher revenues from Select Energy as a result of new contracts for energy services. The regulated retail revenue increase is primarily due to higher retail sales ($41 million), the increase in WMECO's standard offer service rate ($16 million), and the recovery of previously deferred fuel costs for CL&P ($9 million), partially offset by 5 and 11 percent rate decreases for PSNH that were effective October 1, 2000, and May 1, 2001, respectively ($33 million). Regulated retail kilowatt-hour sales increased by 4.7 percent in 2001. Wholesale revenues were lower due to the sale of Millstone at the end of the first quarter of 2001 and lower energy sales. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased in 2001, primarily due to higher purchased energy and capacity costs for Select Energy ($288 million which is net of purchases from other NU affiliates), partially offset by lower energy costs for the regulated subsidiaries ($36 million). Other Operation and Maintenance Other operation and maintenance (O&M) expenses decreased by $38 million in 2001, primarily due to lower nuclear expenses ($53 million) as a result of the sale of the Millstone units at the end of the first quarter in 2001, partially offset by higher O&M expenses for the competitive energy companies ($10 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter in 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 2001, primarily due to higher amortization related to restructuring of the regulated subsidiaries. Federal and State Income Taxes Federal and state income taxes combined decreased in 2001, primarily due to lower taxable income. Taxes Other Than Income Taxes Taxes other than income taxes decreased in 2001, primarily due to the settlement of a property tax appeal with the City of Meriden for CL&P and Yankee Energy System, Inc. (Yankee). Interest Charges, Net Interest charges, net decreased in 2001, primarily due to reacquisitions and retirements of long-term debt in 2001 and higher short-term borrowings in 2000 associated with the competitive businesses and the Yankee merger, partially offset by interest associated with the issuance of rate reduction bonds in 2001. Comparison of the First Nine Months of 2001 to the First Nine Months of 2000 - ---------------------------------------------------------------------------- Operating Revenues Total revenues increased by $728 million or 17 percent in the first nine months of 2001, compared with the same period in 2000, primarily due to higher revenues from the competitive energy companies ($645 million), higher Yankee revenues ($141 million) for the nine months ended September 30, 2001, as compared to the seven months ended September 30, 2000 (March 1, 2000 merger date), and higher regulated retail revenues ($60 million), partially offset by lower transmission revenues ($21 million) and lower wholesale regulated revenues ($91 million). The competitive energy companies' increase is primarily due to higher revenues from Select Energy as a result of new contracts for energy services. The regulated retail revenue increase is primarily due to higher retail sales ($76 million), the increase in WMECO's standard offer service rate ($45 million), and the recovery of previously deferred fuel costs for CL&P ($9 million), partially offset by the 5 and 11 percent rate decreases for PSNH that were effective October 1, 2000, and May 1, 2001, respectively ($69 million). Wholesale revenues were lower due to the sale of Millstone at the end of the first quarter of 2001 and lower energy sales. Regulated retail kilowatt-hour sales increased by 3.0 percent in 2001. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased in 2001, primarily due to higher purchased energy and capacity costs for Select Energy ($783 million which is net of purchases from other NU affiliates) and higher energy costs for the regulated subsidiaries ($44 million). Other Operation and Maintenance Other O&M expenses decreased $19 million in 2001, primarily due to lower nuclear expenses ($69 million) as a result of the sale of the Millstone units at the end of the first quarter of 2001, partially offset by higher O&M expenses for the competitive energy companies ($49 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter of 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 2001, primarily due to the amortization in 2001 related to the gain on sale of the Millstone units by CL&P and WMECO ($654 million) and higher amortization related to restructuring. Federal and State Income Taxes Federal and state income taxes combined increased in 2001, primarily due to the tax impacts of the Millstone sale. Taxes Other Than Income Taxes Taxes other than income taxes decreased in 2001, primarily due to the settlement of a property tax appeal with the City of Meriden for CL&P and Yankee, ($24 million), partially offset by higher Connecticut gross earnings taxes ($15 million) resulting from the phase-in of restructuring in Connecticut in 2000. Gain on Sale of Utility Plant NU recorded gains on the sale of CL&P's and WMECO's ownership interests in Millstone. A corresponding amount of amortization expense was recorded. Gain Related to Millstone Sale NU recognized an after-tax gain of approximately $125 million primarily related to the sale of the Millstone 3 interests of PSNH and several unaffiliated owners. Loss on Share Repurchase Contracts In the first half of 2001, NU recorded a net noncash charge of approximately $35 million related to the forward purchase of 10.1 million NU common shares in December 1999 and January 2000. Under EITF Issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," NU was required to recognize a net charge for the difference between the average purchase price and the price of the NU shares upon the closing of these forward repurchase arrangements, plus carrying charges. Nuclear Related Costs Nuclear related costs decreased in 2001, primarily due to the CL&P/WMECO settlement in 2000 of Millstone litigation. Other, Net Other, net increased primarily due to costs associated with nonrecurring legal costs in 2000 ($5 million), higher environmental reserves in 2000 and the gain on the disposition of property for PSNH in 2001 ($4 million). Interest Charges, Net Interest charges, net decreased in 2001, primarily due to reacquisitions and retirements of long-term debt and higher short-term borrowings in 2000 associated with asset transfers and the Yankee merger, partially offset by the interest expense associated with the issuance of rate reduction bonds in 2001. Cumulative Effect of Accounting Change, Net of Tax Benefit The cumulative effect of accounting change, net of tax benefit, recorded in 2001, represents the effect of the adoption of SFAS No. 133, as amended ($22 million). REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Northeast Utilities: We have reviewed the accompanying consolidated balance sheet of Northeast Utilities (a Massachusetts trust) and subsidiaries as of September 30, 2001, and the related consolidated statements of income for the three and nine- month periods ended September 30, 2001 and 2000, and the consolidated statements of cash flows for the nine-month periods ended September 30, 2001 and 2000. 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 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, 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 the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet and consolidated statement of capitalization as of December 31, 2000 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 23, 2001 (except with respect to the matters discussed in Note 15, as to which the date is March 13, 2001), we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2000, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Arthur Andersen LLP Arthur Andersen LLP Hartford, Connecticut November 8, 2001 CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) ASSETS - ------ Property, Plant and Equipment, at Original Cost: Electric............................................. $ 3,075,164 $ 5,756,098 Less: Accumulated provision for depreciation...... 1,238,381 4,210,429 ---------------- ---------------- 1,836,783 1,545,669 Construction work in progress........................ 134,755 128,835 Nuclear fuel, net.................................... 2,527 79,672 ---------------- ---------------- Total net property, plant and equipment.......... 1,974,065 1,754,176 ---------------- ---------------- Other Property and Investments: Nuclear decommissioning trusts, at market............ 6,060 536,912 Investments in regional nuclear generating companies, at equity................................ 39,318 41,395 Other, at cost....................................... 133,018 33,708 ---------------- ---------------- 178,396 612,015 ---------------- ---------------- Current Assets: Cash................................................. 444 5,461 Investments in securitizable assets.................. 35,592 98,146 Notes receivable from affiliated companies........... 161,200 38,000 Receivables, net..................................... 238,153 29,245 Accounts receivable from affiliated companies........ 59,252 103,763 Accrued utility revenues............................. 4,870 - Fuel, materials and supplies, at average cost........ 33,835 36,332 Prepayments and other................................ 27,585 32,291 ---------------- ---------------- 560,931 343,238 ---------------- ---------------- Deferred Charges: Regulatory assets.................................... 1,999,176 1,835,967 Prepaid pension...................................... 218,266 170,672 Unamortized debt expense............................. 6,257 14,794 Other ............................................... 46,911 33,336 ---------------- ---------------- 2,270,610 2,054,769 ---------------- ---------------- Total Assets........................................... $ 4,984,002 $ 4,764,198 ================ ================
The accompanying notes are an integral part of these financial statements. CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common stock, $10 par value - authorized 24,500,000 shares; 7,584,884 shares outstanding in 2001 and 2000..................................... $ 75,849 $ 75,849 Capital surplus, paid in.............................. 414,018 413,192 Retained earnings..................................... 269,612 243,197 Accumulated other comprehensive income................ 48 506 ---------------- ---------------- Total common stockholder's equity............ 759,527 732,744 Preferred stock....................................... 116,200 116,200 Long-term debt........................................ 823,208 1,072,688 ---------------- ---------------- Total capitalization......................... 1,698,935 1,921,632 ---------------- ---------------- Rate Reduction Bonds.................................... 1,438,400 - ---------------- ---------------- Minority Interest in Consolidated Subsidiary............ - 100,000 ---------------- ---------------- Obligations Under Capital Leases........................ 15,641 39,910 ---------------- ---------------- Current Liabilities: Notes payable to banks................................ - 115,000 Long-term debt and preferred stock - current portion.. - 160,000 Obligations under capital leases - current portion.... 524 89,959 Accounts payable...................................... 163,629 153,944 Accounts payable to affiliated companies.............. 109,969 122,106 Accrued taxes......................................... 93,357 32,901 Accrued interest...................................... 51,535 13,995 Other................................................. 36,964 31,324 ---------------- ---------------- 455,978 719,229 ---------------- ---------------- Deferred Credits and Other Long-Term Liabilities: Accumulated deferred income taxes..................... 809,425 977,439 Accumulated deferred investment tax credits........... 96,647 99,771 Decommissioning obligation - Millstone 1.............. - 580,320 Deferred contractual obligations...................... 144,790 160,590 Other................................................. 324,186 165,307 ---------------- ---------------- 1,375,048 1,983,427 ---------------- ---------------- Commitments and Contingencies (Note 2) Total Capitalization and Liabilities.................... $ 4,984,002 $ 4,764,198 ================ ================
The accompanying notes are an integral part of these financial statements. CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------- (Thousands of Dollars) Operating Revenues.................................. $ 675,578 $ 748,143 $ 2,019,758 $ 2,179,704 --------- --------- ----------- ----------- Operating Expenses: Operation - Fuel, purchased and net interchange power....... 395,554 421,155 1,159,520 1,243,865 Other........................................... 74,416 105,753 238,204 306,789 Maintenance........................................ 23,415 35,012 89,168 101,713 Depreciation....................................... 22,431 27,836 73,539 89,232 Amortization of regulatory assets, net............. 65,440 30,505 684,456 56,944 Federal and state income taxes..................... 20,867 41,212 69,806 107,162 Taxes other than income taxes...................... 31,219 34,726 101,445 103,311 Gain on sale of utility plant...................... - - (522,887) - --------- --------- ----------- ----------- Total operating expenses..................... 633,342 696,199 1,893,251 2,009,016 --------- --------- ----------- ----------- Operating Income..................................... 42,236 51,944 126,507 170,688 --------- --------- ----------- ----------- Other Income/(Loss): Gain related to Millstone sale..................... - - 27,997 - Other, net......................................... 7,430 (2,466) 10,654 (18,549) Income taxes....................................... 1,739 3,246 704 18,968 --------- --------- ----------- ----------- Other income, net............................ 9,169 780 39,355 419 --------- --------- ----------- ----------- Income before interest charges............... 51,405 52,724 165,862 171,107 --------- --------- ----------- ----------- Interest Charges: Interest on long-term debt......................... 12,357 21,821 48,141 67,950 Interest on rate reduction bonds................... 20,224 - 40,801 - Other interest..................................... - 2,995 984 6,420 --------- --------- ----------- ----------- Interest charges, net........................ 32,581 24,816 89,926 74,370 --------- --------- ----------- ----------- Net Income........................................... $ 18,824 $ 27,908 $ 75,936 $ 96,737 ========= ========= =========== ===========
The accompanying notes are an integral part of these financial statements. THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, --------------------------------- 2001 2000 -------------- ------------ (Thousands of Dollars) Operating Activities: Net income........................................................ $ 75,936 $ 96,737 Adjustments to reconcile to net cash flows provided by operating activities: Depreciation.................................................... 73,539 89,232 Deferred income taxes and investment tax credits, net........... (148,330) 4,824 Amortization of regulatory assets, net.......................... 684,456 56,944 Gain on sale of utility plant................................... (522,887) - Net other uses of cash.......................................... (101,443) 8,854 Changes in working capital: Receivables and accrued utility revenues........................ (169,267) (148,983) Fuel, materials and supplies.................................... 2,497 (2,603) Accounts payable................................................ (2,452) 174,063 Accrued taxes................................................... 60,456 (99,048) Investments in securitizable assets............................. 62,554 44,985 Other working capital (excludes cash)........................... 47,886 (48,506) -------------- ------------ Net cash flows provided by operating activities..................... 62,945 176,499 -------------- ------------ Investing Activities: Investments in plant: Electric utility plant.......................................... (167,068) (127,857) Nuclear fuel.................................................... (895) (18,794) -------------- ------------ Net cash flows used for investments in plant...................... (167,963) (146,651) Investment in NU system Money Pool................................ (123,200) (80,400) Investments in nuclear decommissioning trusts..................... (95,494) (18,615) Other investment activities, net.................................. (97,233) (1,440) Net proceeds from the sale of utility plant....................... 832,353 686,807 Buyout/buydown of IPP contracts................................... (1,028,802) - -------------- ------------ Net cash flows (used in)/provided by investing activities........... (680,339) 439,701 -------------- ------------ Financing Activities: Net (decrease)/increase in short-term debt........................ (115,000) 8,300 Issuance of rate reduction bonds.................................. 1,438,400 - Retirement of capital lease obligation............................ (145,800) - Retirement of monthly income preferred securities................. (100,000) - Reacquisitions and retirements of long-term debt.................. (416,000) (179,071) Reacquisitions and retirements of preferred stock................. - (99,539) Repurchase of common shares....................................... - (300,000) Cash dividends on preferred stock................................. (4,169) (6,012) Cash dividends on common stock.................................... (45,054) (35,000) -------------- ------------ Net cash flows provided by/(used in) financing activities........... 612,377 (611,322) -------------- ------------ Net(decrease)/increase in cash for the period....................... (5,017) 4,878 Cash - beginning of period.......................................... 5,461 364 -------------- ------------ Cash - end of period................................................ $ 444 $ 5,242 ============== ============
The accompanying notes are an integral part of these 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, the First and Second Quarter 2001 Form 10-Qs and the NU 2000 Form 10-K. RESULTS OF OPERATIONS The components of significant income statement variances for the third quarter of 2001 and the first nine months of 2001 are provided in the table below. Income Statement Variances (Millions of Dollars) 2001 over/(under) 2000 ---------------------- Third Nine Quarter Percent Months Percent ------- ------- ------ ------- Operating Revenues $(73) (10)% $(160) (7)% Operating Expenses: Fuel, purchased and net interchange power (26) (6) (84) (7) Other operation (31) (30) (69) (22) Maintenance (12) (33) (13) (12) Depreciation (5) (19) (16) (18) Amortization of regulatory assets, net 35 (a) 628 (a) Federal and state income taxes (20) (49) (37) (35) Taxes other than income taxes (4) (10) (2) (2) Gain on sale of utility plant - - (523) (a) ---- ---- ----- ---- Total operating expenses (63) (9) (116) (6) ---- ---- ----- ---- Operating income (10) (19) (44) (26) ---- ---- ----- ---- Other Income/(Loss): Gain related to Millstone sale - - 28 (a) Other, net 10 (a) 29 (a) Income taxes (1) (46) (18) (96) ---- ---- ----- ---- Other income, net 9 (a) 39 (a) Interest charges, net 8 31 16 21 ---- ---- ----- ---- Net income $ (9) (33)% $ (21) (22)% ==== ==== ===== ==== (a) Percent greater than 100. Comparison of the Third Quarter 2001 to the Third Quarter of 2000 - ----------------------------------------------------------------- Operating Revenues Total revenues decreased by $73 million or 10 percent in the third quarter of 2001, compared with the same period in 2000, primarily due to lower wholesale revenues ($101 million), partially offset by higher retail revenues ($32 million). Wholesale revenues were lower primarily as a result of the sale of the Millstone units at the end of the first quarter of 2001 and lower energy sales. Retail revenues increased primarily due to higher retail sales ($23 million) and the recovery of previously deferred fuel costs which began in August 2001 ($9 million). Retail sales increased 4.3 percent compared to the third quarter of 2000. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense decreased in 2001, primarily due to lower purchased power costs resulting from the buydown and buyout of various cogeneration contracts and lower nuclear fuel expense. Other Operation and Maintenance Other O&M expenses decreased by $43 million in 2001, primarily due to lower nuclear expenses ($47 million) as a result of the sale of the Millstone units at the end of the first quarter of 2001 and lower administrative and general costs ($4 million), partially offset by higher distribution maintenance expenses ($3 million) and higher transmission expenses ($4 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter in 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 2001, primarily due to higher amortization related to restructuring. Federal and State Income Taxes Federal and state income taxes combined decreased in 2001, primarily due to lower taxable income. Taxes Other Than Income Taxes Taxes other than income taxes decreased in 2001, primarily due to a property tax settlement with the City of Meriden, partially offset by higher gross earnings taxes. Other, Net Other, net increased in 2001, primarily due to higher miscellaneous income in 2001 including the allowed return on deferred fuel balances ($10 million). Interest Charges, Net Interest charges, net increased in 2001, primarily due to the interest expense associated with the issuance of rate reduction bonds in 2001, partially offset by lower long-term debt outstanding as a result of reacquisitions and retirements of long-term debt in 2001. Comparison of the First Nine Months of 2001 to the First Nine Months of 2000 - ---------------------------------------------------------------------------- Operating Revenues Total revenues decreased by $160 million or 7 percent in the first nine months of 2001, compared with the same period in 2000, primarily due to lower wholesale revenues ($199 million) and lower transmission revenues ($17 million), partially offset by higher retail revenues ($58 million). Wholesale revenues were lower primarily as a result of the sale of the Millstone units at the end of the first quarter of 2001 and lower energy sales. Retail revenues increased primarily due to higher retail sales ($53 million) and the recovery of previously deferred fuel costs ($9 million). Retail sales increased 3.4 percent compared to the first nine months of 2000. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense decreased in 2001, primarily due to lower purchased power costs resulting from the buydown and buyout of various cogeneration contracts and lower nuclear fuel expense. Other Operation and Maintenance Other O&M expenses decreased by $82 million in 2001, primarily due to lower nuclear expenses ($67 million) as a result of the sale of the Millstone units at the end of the first quarter of 2001, lower transmission expenses ($15 million) and lower administrative and general expenses ($9 million), partially offset by higher distribution maintenance expenses ($6 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter in 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 2001, primarily due to the amortization related to the gain on sale of the Millstone units ($523 million) and higher amortization related to restructuring. Federal and State Income Taxes Federal and state income taxes combined decreased in 2001, primarily due to lower taxable income. Gain on Sale of Utility Plant CL&P recorded a gain on the sale of its ownership share in the Millstone units. A corresponding amount of amortization expense was recorded. Gain Related to Millstone Sale CL&P recognized a gain related to the former Connecticut Municipal Electric Energy Cooperative's (CMEEC) portion of Millstone 2. Other, Net Other, net increased in 2001, primarily due to the settlement, in 2000, of Millstone-related litigation, net of insurance proceeds ($9 million) and a write-off associated with the former CMEEC nuclear entitlement ($6 million) in 2000 and higher interest income in 2001, including the allowed return on deferred fuel balances ($10 million). Interest Charges, Net Interest charges, net increased in 2001, primarily due to the interest expense associated with the issuance of rate reduction bonds in 2001, partially offset by lower long-term debt outstanding as a result of reacquisitions and retirements of long-term debt in 2001. LIQUIDITY As a result of the sale of the Millstone units in March 2001, and the securitization of CL&P stranded costs in March 2001, CL&P continued to maintain a high degree of liquidity through the third quarter of 2001. At no point during the quarter did CL&P borrow under its credit line. Cash held by CL&P was more than adequate to fund its short-term borrowing needs. In part because of CL&P's liquidity, its credit rating is currently being reviewed for possible upgrade. CL&P expects that this review will be completed before the end of 2001. In November 2001, NU expects to renew $650 million in revolving credit lines, including $300 million to support CL&P, PSNH, WMECO, and Yankee Gas. Over the coming years, management expects that rather than CL&P paying out substantially all of its earnings as dividends to the parent company, that these dividends may be significantly less should CL&P receive the regulatory approval for the major capital projects that it has proposed. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) ASSETS - ------ Property, Plant and Equipment, at Cost: Electric............................................ $ 1,431,808 $ 1,505,967 Other............................................... 6,221 - ---------------- ---------------- 1,438,029 1,505,967 Less: Accumulated provision for depreciation..... 683,686 711,340 ---------------- ---------------- 754,343 794,627 Construction work in progress....................... 32,278 27,251 Nuclear fuel, net................................... - 1,924 ---------------- ---------------- Total net property, plant and equipment.......... 786,621 823,802 ---------------- ---------------- Other Property and Investments: Nuclear decommissioning trusts, at market........... - 7,362 Investments in regional nuclear generating companies and subsidiary company, at equity........ 9,726 16,293 Other, at cost...................................... 42,453 3,225 ---------------- ---------------- 52,179 26,880 ---------------- ---------------- Current Assets: Cash and cash equivalents........................... 8,681 115,135 Receivables, net.................................... 71,234 71,992 Accounts receivable from affiliated companies....... 13,391 2,798 Taxes receivable from affiliated companies.......... 187,573 9,983 Accrued utility revenues............................ 30,139 41,844 Fuel, materials and supplies, at average cost....... 36,666 28,760 Prepayments and other............................... 17,208 14,750 ---------------- ---------------- 364,892 285,262 ---------------- ---------------- Deferred Charges: Regulatory assets................................... 984,334 924,847 Deferred receivable from affiliated company......... - 3,240 Unamortized debt expense............................ 11,132 9,067 Other .............................................. 5,892 9,096 ---------------- ---------------- 1,001,358 946,250 ---------------- ---------------- Total Assets......................................... $ 2,205,050 $ 2,082,194 ================ ================
The accompanying notes are an integral part of these financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common stock, $1 par value - authorized 100,000,000 shares; 388 shares outstanding in 2001 and 1,000 shares outstanding in 2000........ $ - $ 1 Capital surplus, paid in............................. 165,000 424,909 Retained earnings.................................... 160,250 123,177 Accumulated other comprehensive income............... 373 1,207 ---------------- ---------------- Total common shareholder's equity........... 325,623 549,294 Long-term debt....................................... 407,285 407,285 ---------------- ---------------- Total capitalization........................ 732,908 956,579 ---------------- ---------------- Rate Reduction Bonds................................... 525,000 - ---------------- ---------------- Obligations Under Seabrook Power Contracts and Other Capital Leases.............................. 79,776 91,702 ---------------- ---------------- Current Liabilities: Notes payable to affiliated company.................. 27,000 - Preferred stock - current portion.................... - 24,268 Obligations under Seabrook Power Contracts and other capital leases - current portion.................... 26,710 537,528 Accounts payable..................................... 28,432 45,847 Accounts payable to affiliated companies............. 82,556 54,157 Accrued taxes........................................ 14,467 656 Accrued interest..................................... 29,156 4,962 Other................................................ 18,738 13,112 ---------------- ---------------- 227,059 680,530 ---------------- ---------------- Deferred Credits and Other Long-Term Liabilities: Accumulated deferred income taxes.................... 381,812 179,723 Accumulated deferred investment tax credits.......... 14,361 27,348 Deferred contractual obligations..................... 37,739 41,499 Deferred pension costs............................... 38,147 41,216 Deferred revenue from affiliated company............. - 3,240 Other................................................ 168,248 60,357 ---------------- ---------------- 640,307 353,383 ---------------- ---------------- Commitments and Contingencies (Note 2) Total Capitalization and Liabilities................... $ 2,205,050 $ 2,082,194 ================ ================
The accompanying notes are an integral part of these financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------ 2001 2000 2001 2000 ------------------------------------------------ (Thousands of Dollars) Operating Revenues................................... $ 299,711 $ 337,865 $ 927,345 $ 993,017 --------- --------- --------- --------- Operating Expenses: Operation - Fuel, purchased and net interchange power....... 166,889 232,169 585,652 655,508 Other........................................... 31,102 29,584 95,097 93,126 Maintenance........................................ 12,165 9,913 46,959 34,479 Depreciation....................................... 8,199 10,312 30,009 33,361 Amortization of regulatory assets, net............. 26,676 11,468 39,581 34,407 Federal and state income taxes..................... 10,427 5,275 29,015 31,087 Taxes other than income taxes...................... 9,117 10,964 30,255 33,193 --------- --------- --------- --------- Total operating expenses..................... 264,575 309,685 856,568 915,161 --------- --------- --------- --------- Operating Income..................................... 35,136 28,180 70,777 77,856 --------- --------- --------- --------- Other Income/(Loss): Gain related to Millstone sale..................... 11 - 25,924 - Other, net......................................... 527 2,810 13,102 11,175 Income taxes....................................... 1,406 6,507 (8,682) 1,319 --------- --------- --------- --------- Other income, net............................ 1,944 9,317 30,344 12,494 --------- --------- --------- --------- Income before interest charges............... 37,080 37,497 101,121 90,350 --------- --------- --------- --------- Interest Charges: Interest on long-term debt......................... 7,383 8,793 22,398 29,897 Interest on rate reduction bonds................... 7,932 - 13,266 - Other interest..................................... 135 (29) (52) 37 --------- --------- --------- --------- Interest charges, net........................ 15,450 8,764 35,612 29,934 --------- --------- --------- --------- Net Income.......................................... $ 21,630 $ 28,733 $ 65,509 $ 60,416 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ----------------------------- 2001 2000 ------------ ------------ (Thousands of Dollars) Operating activities: Net income........................................................ $ 65,509 $ 60,416 Adjustments to reconcile to net cash flows provided by operating activities: Depreciation.................................................... 30,009 33,361 Deferred income taxes and investment tax credits, net........... 184,001 (10,193) Net deferral of recoverable energy costs, net................... (32,010) (9,420) Amortization of regulatory assets, net.......................... 39,581 34,407 Gain on sale of utility plant................................... (25,924) - Net other sources/(uses) of cash................................ 97,303 (40,462) Changes in working capital: Receivables and accrued utility revenues........................ 1,870 21,695 Fuel, materials and supplies.................................... (7,906) 5,832 Accounts payable................................................ 10,984 (4,941) Accrued taxes................................................... 13,811 21,613 Taxes receivable................................................ (177,590) - Other working capital (excludes cash)........................... 27,362 53,675 ------------ ------------ Net cash flows provided by operating activities..................... 227,000 165,983 ------------ ------------ Investing Activities: Investments in plant: Electric utility plant.......................................... (65,438) (39,098) Nuclear fuel.................................................... (37) (254) ------------ ------------ Net cash flows used for investments in plant...................... (65,475) (39,352) Investment in nuclear decommissioning trusts...................... (1,625) (470) Other investment activities, net.................................. (32,661) (598) Net proceeds from sale of utility plant........................... 25,012 - ------------ ------------ Net cash flows used in investing activities......................... (74,749) (40,420) ------------ ------------ Financing Activities: Net increase in short-term debt................................... 27,000 - Issuance of rate reduction bonds.................................. 525,000 - Repurchase of common shares....................................... (260,000) - Reacquisitions and retirements of long-term debt.................. - (109,200) Reacquisitions and retirements of preferred stock................. (24,268) (25,000) Buydown of capital lease obligation............................... (497,508) - Cash dividends on preferred stock................................. (1,929) (3,313) Cash dividends on common stock.................................... (27,000) - ------------ ------------ Net cash flows used in financing activities......................... (258,705) (137,513) ------------ ------------ Net decrease in cash and cash equivalents........................... (106,454) (11,950) Cash and cash equivalents - beginning of period..................... 115,135 182,588 ------------ ------------ Cash and cash equivalents - end of period........................... $ 8,681 $ 170,638 ============ ============
The accompanying notes are an integral part of these 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, the First and Second Quarter 2001 Form 10-Qs and the NU 2000 Form 10-K. RESULTS OF OPERATIONS The components of significant income statement variances for the third quarter of 2001 and the first nine months of 2001 are provided in the table below. Income Statement Variances (Millions of Dollars) 2001 over/(under) 2000 ---------------------- Third Nine Quarter Percent Months Percent ------- ------- ------ ------- Operating Revenues $(38) (11)% $(66) (7)% Operating Expenses: Fuel, purchased and net interchange power (65) (28) (70) (11) Other operation 2 5 2 2 Maintenance 2 23 12 36 Depreciation (2) (20) (3) (10) Amortization of regulatory assets, net 15 (a) 5 15 Federal and state income taxes 5 98 (2) (7) Taxes other than income taxes (2) (17) (3) (9) ---- ---- ---- ---- Total operating expenses (45) (15) (59) (6) ---- ---- ---- ---- Operating income 7 25 (7) (9) ---- ---- ---- ---- Other Income/(Loss): Gain related to Millstone sale - - 26 (a) Other, net (2) (81) 2 17 Income taxes (5) (78) (10) (a) ---- ---- ---- ---- Other income, net (7) (79) 18 (a) Interest charges, net 7 76 6 19 ---- ---- ---- ---- Net income $ (7) (25)% $ 5 8% ==== ==== ==== ==== (a) Percent greater than 100. Comparison of the Third Quarter 2001 to the Third Quarter of 2000 - ----------------------------------------------------------------- Operating Revenues Total operating revenues decreased $38 million or 11 percent in the third quarter of 2001, compared with the same period of 2000, primarily due to lower retail revenues ($16 million) and lower wholesale revenues from lower capacity and energy sales to the market ($23 million). Retail revenues decreased due to 5 and 11 percent rate decreases that were effective October 1, 2000 and May 1, 2001, respectively ($33 million), partially offset by higher retail sales. Retail kilowatt-hour sales increased by 8.3 percent in 2001. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense decreased in 2001, primarily due to lower purchased power expenses and lower expenses from NAEC as a result of the buydown of the Seabrook Power Contracts. Other Operation and Maintenance Other O&M expenses increased in 2001, primarily due to higher maintenance costs in 2001 associated with the fossil plants ($2 million) and higher distribution maintenance costs ($1 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter in 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 2001, primarily due to higher amortization related to restructuring. Taxes Other Than Income Taxes Taxes other than income taxes decreased in 2001, primarily due to lower New Hampshire franchise taxes in 2001. Other, Net Other, net decreased in 2001, primarily due to higher interest income in 2000. Interest Charges, Net Interest charges, net were higher in 2001, primarily due to the issuance of rate reduction bonds in 2001, partially offset by lower long-term debt outstanding in 2001. Comparison of the First Nine Months of 2001 to the First Nine Months of 2000 - ---------------------------------------------------------------------------- Operating Revenues Total operating revenues decreased $66 million or 7 percent in the first nine months of 2001, compared to the same period of 2000, primarily due to lower retail revenues ($45 million), lower wholesale revenues from lower capacity and energy sales to the market ($17 million) and lower transmission revenues ($4 million). Retail revenues decreased due to 5 and 11 percent rate decreases that were effective October 1, 2000 and May 1, 2001, respectively ($67 million), partially offset by higher retail sales. Retail kilowatt-hour sales increased by 3.6 percent in 2001. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense decreased in 2001, primarily due to lower expenses from NAEC as a result of the buydown of the Seabrook Power Contracts. Other Operation and Maintenance Other O&M expenses increased in 2001, primarily due to higher maintenance costs in 2001 associated with the fossil plants ($15 million) and higher distribution maintenance costs ($2 million), partially offset by lower transmission expense ($4 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter in 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 2001, primarily due to higher amortization related to restructuring. Federal and State Income Taxes Federal and state income taxes combined increased in 2001 as compared to 2000, primarily due to higher book taxable income. Taxes Other Than Income Taxes Taxes other than income taxes decreased in 2001, primarily due to lower New Hampshire franchise taxes in 2001. Gain Related to Millstone Sale PSNH recognized a gain as a result of the sale of its ownership share in Millstone 3. Other, Net Other, net increased in 2001, primarily due to a gain on the disposition of property in 2001 and higher environmental reserves in 2000, partially offset by higher interest income in 2000. Interest Charges, Net Interest charges, net were higher in 2001 primarily due to the issuance of rate reduction bonds in 2001, partially offset by lower long-term debt outstanding in 2001. LIQUIDITY As a result of the sale of the Millstone units in March 2001, and the securitization of PSNH stranded costs in April 2001, PSNH continued to maintain a high degree of liquidity through the third quarter of 2001. At no point during the quarter did PSNH borrow under its credit line. In part because of PSNH's liquidity, its credit rating is currently being reviewed for possible upgrade. PSNH expects that this review will be completed before the end of 2001. In November 2001, NU expects to renew $650 million in revolving credit lines, including $300 million to support CL&P, PSNH, WMECO, and Yankee Gas. PSNH has applied to the NHPUC to refinance $287.5 million of tax- exempt bonds carrying interest rates of 7.65 percent and 7.5 percent. PSNH is considering using a combination of variable-rate and fixed- rate tax-exempt bonds for the refinancing. As a result of the current low interest rate environment, PSNH expects to save several million dollars annually in interest costs as a result of the refinancing. Over the coming years, management expects PSNH to pay out substantially all of its earnings as dividends to the parent company. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) ASSETS - ------ Property, Plant and Equipment, at Original Cost: Electric.............................................. $ 556,819 $ 1,112,405 Less: Accumulated provision for depreciation...... 185,663 792,923 ---------------- ---------------- 371,156 319,482 Construction work in progress......................... 21,151 22,813 Nuclear fuel, net..................................... - 18,296 ---------------- ---------------- Total net property, plant and equipment........... 392,307 360,591 ---------------- ---------------- Other Property and Investments: Nuclear decommissioning trusts, at market............. - 144,921 Investments in regional nuclear generating companies, at equity................................. 10,564 11,117 Other, at cost........................................ 10,359 6,249 ---------------- ---------------- 20,923 162,287 ---------------- ---------------- Current Assets: Cash.................................................. 6,068 985 Receivables, net...................................... 43,878 36,364 Accounts receivable from affiliated companies......... 8,538 16,146 Taxes receivable...................................... 5,979 - Accrued utility revenues.............................. 10,769 21,222 Fuel, materials and supplies, at average cost......... 1,526 1,606 Prepayments and other................................. 1,538 4,817 ---------------- ---------------- 78,296 81,140 ---------------- ---------------- Deferred Charges: Regulatory assets..................................... 338,310 392,247 Prepaid pension....................................... 50,807 45,473 Unamortized debt expense.............................. 683 1,822 Other ................................................ 2,260 4,258 ---------------- ---------------- 392,060 443,800 ---------------- ---------------- Total Assets........................................... $ 883,586 $ 1,047,818 ================ ================
The accompanying notes are an integral part of these financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 ---------------- ---------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common stock, $25 par value - authorized 1,072,471 shares; 509,696 shares outstanding in 2001 and 590,093 shares outstanding in 2000...... $ 12,742 $ 14,752 Capital surplus, paid in............................. 82,223 94,010 Retained earnings.................................... 61,921 62,952 Accumulated other comprehensive income............... 54 182 ---------------- ---------------- Total common stockholder's equity........... 156,940 171,896 Preferred stock...................................... - 35,000 Long-term debt....................................... 100,867 139,425 ---------------- ---------------- Total capitalization........................ 257,807 346,321 ---------------- ---------------- Rate Reduction Bonds................................... 155,000 - ---------------- ---------------- Obligations Under Capital Leases....................... 93 5,935 ---------------- ---------------- Current Liabilities: Notes payable to banks............................... - 110,000 Notes payable to affiliated company.................. 50,700 600 Long-term debt and preferred stock - current portion. - 61,500 Obligations under capital leases - current portion... 21 20,986 Accounts payable..................................... 50,614 25,298 Accounts payable to affiliated companies............. 6,593 8,611 Accrued taxes........................................ 307 8,471 Accrued interest..................................... 4,092 4,703 Other................................................ 10,014 7,671 ---------------- ---------------- 122,341 247,840 ---------------- ---------------- Deferred Credits and Other Long-Term Liabilities: Accumulated deferred income taxes.................... 237,303 224,711 Accumulated deferred investment tax credits.......... 4,082 17,580 Decommissioning obligation - Millstone 1............. - 136,130 Deferred contractual obligations..................... 38,217 42,519 Other................................................ 68,743 26,782 ---------------- ---------------- 348,345 447,722 ---------------- ---------------- Commitments and Contingencies (Note 2) Total Capitalization and Liabilities................... $ 883,586 $ 1,047,818 ================ ================
The accompanying notes are an integral part of these financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------- 2001 2000 2001 2000 ------------------------------------------------- (Thousands of Dollars) Operating Revenues.................................. $ 120,679 $ 130,400 $ 370,845 $ 379,900 --------- --------- ---------- --------- Operating Expenses: Operation - Fuel, purchased and net interchange power...... 75,803 61,245 245,254 185,873 Other.......................................... 20,740 24,651 50,761 55,544 Maintenance....................................... 3,575 7,064 16,124 25,112 Depreciation...................................... 3,124 4,389 10,675 13,334 Amortization of regulatory assets................. 180 8,322 125,590 33,227 Federal and state income taxes.................... 5,051 6,728 10,960 14,923 Taxes other than income taxes..................... 2,436 4,061 10,360 13,191 Gain on sale of utility plant..................... - - (121,022) - --------- --------- ---------- --------- Total operating expenses.................... 110,909 116,460 348,702 341,204 --------- --------- ---------- --------- Operating Income.................................... 9,770 13,940 22,143 38,696 --------- --------- ---------- --------- Other (Loss)/Income: Other, net........................................ (3,074) 1,004 (3,764) (620) Income taxes...................................... 1,324 592 1,758 5,192 --------- --------- ---------- --------- Other (loss)/income, net.................... (1,750) 1,596 (2,006) 4,572 --------- --------- ---------- --------- Income before interest charges.............. 8,020 15,536 20,137 43,268 --------- --------- ---------- --------- Interest Charges: Interest on long-term debt........................ 814 2,968 4,520 11,076 Interest on rate reduction bonds.................. 2,727 - 3,636 - Other interest.................................... 599 2,930 3,264 8,545 --------- --------- ---------- --------- Interest charges, net...................... 4,140 5,898 11,420 19,621 --------- --------- ---------- --------- Net Income.......................................... $ 3,880 $ 9,638 $ 8,717 $ 23,647 ======== ========= ========== =========
The accompanying notes are an integral part of these financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------------------------ 2001 2000 ------------ ------------- (Thousands of Dollars) Operating Activities: Net income........................................................ $ 8,717 $ 23,647 Adjustments to reconcile to net cash flows provided by operating activities: Depreciation.................................................... 10,675 13,334 Deferred income taxes and investment tax credits, net........... 13,626 (10,450) Net amortization of recoverable energy costs.................... 3,548 9,151 Amortization of regulatory assets, net.......................... 125,590 33,227 Gain on sale of utility plant................................... (121,022) - Net other uses of cash.......................................... (4,256) (11,820) Changes in working capital: Receivables and accrued utility revenues........................ 10,547 (16,014) Fuel, materials and supplies.................................... 80 1,457 Accounts payable................................................ 23,298 17,606 Accrued taxes................................................... (8,164) 1,116 Other working capital (excludes cash)........................... (968) (23,687) ------------ ------------- Net cash flows provided by operating activities..................... 61,671 37,567 ------------ ------------- Investing Activities: Investments in plant: Electric utility plant.......................................... (23,957) (15,084) Nuclear fuel.................................................... (140) (4,005) ------------ ------------- Net cash flows used for investments in plant...................... (24,097) (19,089) Investments in nuclear decommissioning trusts..................... (21,767) (3,031) Other investment activities, net.................................. (3,557) (522) Net proceeds from the sale of utility plant....................... 177,821 185,787 Buyout of IPP contract............................................ (99,700) - ------------ ------------- Net cash flows provided by investing activities..................... 28,700 163,145 ------------ ------------- Financing Activities: Net decrease in short-term debt................................... (59,900) (5,800) Issuance of rate reduction bonds.................................. 155,000 - Reacquisitions and retirements of long-term debt.................. (100,000) (94,150) Reacquisitions and retirements of preferred stock................. (36,500) (1,500) Retirement of capital lease obligation............................ (34,200) - Repurchase of common shares....................................... - (90,000) Cash dividends on preferred stock................................. (690) (2,098) Cash dividends on common stock.................................... (8,998) (8,002) ------------ ------------- Net cash flows used in financing activities......................... (85,288) (201,550) ------------ ------------- Net increase/(decrease) in cash for the period...................... 5,083 (838) Cash - beginning of period.......................................... 985 950 ------------ ------------- Cash - end of period................................................ $ 6,068 $ 112 ============ =============
The accompanying notes are an integral part of these 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, the First and Second Quarter 2001 Form 10-Qs and the NU 2000 Form 10-K. RESULTS OF OPERATIONS The components of significant income statement variances for the third quarter of 2001 and the first nine months of 2001 are provided in the table below. Income Statement Variances (Millions of Dollars) 2001 over/(under) 2000 ---------------------- Third Nine Quarter Percent Months Percent ------- ------- ------ ------- Operating Revenues $(10) (7)% $ (9) (2)% Operating Expenses: Fuel, purchased and net interchange power 15 24 59 32 Other operation (4) (16) (5) (9) Maintenance (4) (49) (9) (36) Depreciation (1) (29) (2) (20) Amortization of regulatory assets, net (8) (98) 92 (a) Federal and state income taxes (2) (25) (4) (27) Taxes other than income taxes (2) (40) (3) (21) Gain on sale of utility plant - - (121) (a) ---- ---- ----- ---- Total operating expenses (6) (5) 7 2 ---- ---- ----- ---- Operating income (4) (30) (16) (43) ---- ---- ----- ---- Other (Loss)/Income: Other, net (4) (a) (3) (a) Income taxes 1 (a) (4) (66) ---- ---- ----- ---- Other (loss)/income, net (3) (a) (7) (a) Interest charges, net (1) (30) (8) (42) ---- ---- ----- ---- Net income $ (6) (60)% $ (15) (63)% ==== ==== ===== ==== (a) Percent greater than 100. Comparison of the Third Quarter 2001 to the Third Quarter of 2000 - ----------------------------------------------------------------- Operating Revenues Total revenues decreased by $10 million or 7 percent in the third quarter of 2001, compared with the same period in 2000, primarily due to lower wholesale revenues ($28 million), partially offset by higher retail revenues ($19 million). Wholesale revenues were lower primarily as a result of the sale of the Millstone units at the end of the first quarter of 2001. Retail revenues increased primarily due to an increase in the standard offer service rate. Retail sales were flat in 2001 compared to the third quarter of 2000. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased in 2001, primarily due to higher purchased power costs associated with the standard offer supply. Other Operation and Maintenance Other O&M expenses decreased in 2001, primarily due to lower nuclear expenses ($11 million) as a result of the sale of the Millstone units at the end of the first quarter in 2001, partially offset by higher administrative and general expenses ($3 million) and higher transmission expenses ($1 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter in 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net decreased in 2001, primarily due to lower amortization related to restructuring. Federal and State Income Taxes Federal and state income taxes combined decreased in 2001, primarily as a result of lower taxable income. Taxes Other Than Income Taxes Taxes other than income taxes decreased in 2001, primarily due to lower local property taxes. Other, Net Other, net decreased in 2001, primarily due to higher environmental reserves in 2001. Interest Charges, Net Interest charges, net decreased in 2001, primarily due lower short- term debt borrowings in 2001. Comparison of the First Nine Months of 2001 to the First Nine Months of 2000 - ---------------------------------------------------------------------------- Operating Revenues Total revenues decreased by $9 million or 2 percent in the first nine months of 2001, compared with the same period in 2000, primarily due to lower wholesale revenues ($56 million), partially offset by higher retail revenues ($49 million). Wholesale revenues were lower primarily as a result of the sale of the Millstone units at the end of the first quarter of 2001. Retail revenues increased primarily due to an increase in the standard offer service rate. Retail sales increased by 0.7 percent compared to the first nine months of 2000. Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased in 2001, primarily due to higher purchased power costs associated with the standard offer supply. Other Operation and Maintenance Other O&M expenses decreased in 2001, primarily due to lower nuclear expenses ($21 million) as a result of the sale of the Millstone units at the end of the first quarter in 2001, partially offset by higher administrative and general expenses ($10 million). Depreciation Depreciation expense decreased in 2001, primarily due to the sale of the Millstone units at the end of the first quarter in 2001. Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 2001, primarily due to the amortization in 2001 of the gain on sale of the Millstone units ($121 million), partially offset by lower amortization related to restructuring. Federal and State Income Taxes Federal and state income taxes combined decreased in 2001, primarily due to lower taxable income. Taxes Other Than Income Taxes Taxes other than income taxes decreased in 2001, primarily due to lower local property taxes. Gain on Sale of Utility Plant WMECO recorded a gain on the sale of its ownership share in the Millstone units. A corresponding amount of amortization expense was recorded. Other, Net Other, net decreased in 2001, primarily due to higher environmental reserves in 2001, partially offset by the settlement, in 2000, of Millstone-related litigation, net of insurance proceeds ($3 million). Interest Charges, Net Interest charges, net decreased in 2001, primarily due to lower long- term debt outstanding as a result of reacquisitions and retirements of long-term debt in 2001 and lower short-term borrowings in 2001, partially offset by the interest expense associated with the issuance in 2001 of rate reduction bonds. LIQUIDITY As a result of the sale of the Millstone units in March 2001, and the securitization of WMECO stranded costs in May 2001, WMECO continued to maintain a high degree of liquidity through the third quarter of 2001. At no point during the quarter did WMECO borrow under its credit line. However, for the nine months ended September 30, 2001, as compared to the same period in 2000, WMECO's earnings declined as a result of the delay in the transfer of certain hydroelectric generation assets to an affiliated company in 2000. In part because of WMECO's liquidity, its credit rating is currently being reviewed for possible upgrade. WMECO expects that this review will be completed before the end of 2001. In November 2001, NU expects to renew $650 million in revolving credit lines, including $300 million to support CL&P, PSNH, WMECO, and Yankee Gas. Over the coming years, management expects WMECO to pay out substantially all of its earnings as dividends to the parent company. 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 FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (All Companies) A. Presentation The accompanying unaudited financial statements should be read in conjunction with the management's discussion and analysis of financial condition and results of operations in this Form 10-Q, the First and Second Quarter 2001 Form 10-Qs and the Annual Reports of Northeast Utilities (NU), 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 2000 Form 10-K, and the current reports on Form 8-K dated July 10, 2001, July 24, 2001, October 11, 2001, October 23, 2001, and October 29, 2001. The accompanying financial statements contain, in the opinion of management, all adjustments necessary to present fairly NU's and each NU system company's financial position as of September 30, 2001, the results of operations for the three-month and nine- month periods ended September 30, 2001 and 2000, and statements of cash flows for the nine-month periods ended September 30, 2001 and 2000. All adjustments are of a normal, recurring nature except those described in Notes 1C and 2. The results of operations for the three-month and nine-month periods ended September 30, 2001 and 2000, are not indicative of the results expected for a full year. The consolidated financial statements of NU and of its subsidiaries 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 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 the NU system operating companies and the accompanying consolidated financial statements conform to accounting principles generally accepted in the United States 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." In 1999, CL&P and WMECO discontinued the application of SFAS No. 71 for the generation portion of their businesses. During the fourth quarter of 2000, PSNH discontinued the application of SFAS No. 71 for the generation portion of its business. In March 2001, CL&P and WMECO sold their ownership interests in the Millstone units, and the gain on the sale was used to offset recoverable nuclear costs. Also in March 2001, CL&P issued rate reduction bonds and used a portion of those proceeds to buyout or buydown certain contracts with independent power producers. These payments were recorded as regulatory assets. In April 2001, PSNH issued rate reduction bonds and used a portion of those proceeds to retire preferred stock and buydown the Seabrook Power Contracts with North Atlantic Energy Corporation, an affiliated company. In May 2001, WMECO issued rate reduction certificates and used those proceeds to reduce its purchased-power obligations and to repay short-term debt. As a result of the issuance of rate reduction bonds and certificates, certain regulatory assets, which are collateral, have been separately segregated as securitized regulatory assets and are being collected through a specified reconciling customer charge. CL&P's, PSNH's and WMECO's transmission and distribution businesses will 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 the NU system operating companies will recover their investments in long-lived assets, including regulatory assets, through charges to their transmission and distribution customers. These costs will be recovered over a period of time ranging from 7 to 26 years, subject to certain adjustments. Stranded costs for CL&P and WMECO will be recovered through a transition charge over a 12-year period. PSNH has three categories of stranded costs. Part 1 costs are securitized regulatory assets that are recovered over the life of the rate reduction bonds. Part 2 costs are ongoing costs consisting of nuclear decommissioning and independent power producer costs that are recovered as incurred, over the time period PSNH is responsible for those costs. Part 3 costs are nonsecuritized regulatory assets which must be recovered by a recovery end date to be determined in accordance with the "Agreement to Settle PSNH Restructuring" (Settlement Agreement), or which will be written off as stipulated by that Settlement Agreement. Based on current projections, PSNH expects to fully recover all of its Part 3 costs by the recovery end date. In addition, all material regulatory assets are earning a return. The components of the NU system companies' regulatory assets are as follows: ---------------------------------------------------------------- September 30, December 31, (Millions of Dollars) 2001 2000 ---------------------------------------------------------------- Recoverable nuclear costs $1,473.1 $2,565.8 Securitized assets 1,352.0 - Income taxes, net 474.0 504.7 Unrecovered contractual obligations 76.8 255.8 Recoverable energy costs, net 371.4 332.5 Other 299.3 252.0 ---------------------------------------------------------------- Totals $4,046.6 $3,910.8 ---------------------------------------------------------------- C. New Accounting Standards Derivative Instruments: Effective January 1, 2001, NU adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. All derivative instruments have been identified and recorded at fair value effective January 1, 2001. In addition, for those derivative instruments which are hedging an identified risk, NU has designated and documented all hedging relationships anew. For those contracts that do not meet the hedging requirements, the changes in fair value of those contracts were recognized currently in earnings. As explained in Note 3, commodity derivatives that are utilized for trading purposes are accounted for using the mark-to-market method, under Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting for Energy Trading and Risk Management Activities." On June 27, 2001, the Financial Accounting Standards Board (FASB) cleared SFAS No. 133 Implementation Issue No. C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity." Under Issue No. C15, power purchase or sales agreements, including capacity contracts, for the purchase or sale of electricity would qualify for the normal purchases and normal sales exception provided that certain criteria are met. On October 10, 2001, FASB revised Issue No. C15 by changing one of those criteria. Management is currently determining if there would be a material effect on NU's consolidated financial statements by the change made within the aforementioned FASB guidelines. The current effective date of implementing the revised guidance under Issue No. C15 is January 1, 2002. Goodwill and Other Intangible Assets: In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This statement requires that goodwill and indefinite-lived intangible assets not be amortized effective January 1, 2002. This statement also requires that goodwill will be subject to at least an annual assessment for impairment by applying a fair value-based test. Based on the goodwill and intangible assets maintained by the NU system companies, management believes that upon adoption of SFAS No. 142, annual goodwill amortization expense will be reduced by $9 million. However, upon adoption of the impairment testing rules under SFAS No. 142, there may be a cumulative effect of an accounting change which management has not evaluated at this time. Asset Retirement Obligations: Also in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and applies to (a) all entities and (b) legal obligations associated with the retirement of long- lived assets that result from the acquisition, construction, development, and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. Upon adoption of SFAS No. 143, there may be an impact on NU's consolidated financial statements which management has not estimated at this time. Long-Lived Assets: In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long- Lived Assets." This statement modifies financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Currently, management has not evaluated the impact of the adoption of SFAS No. 144 on NU's consolidated financial statements. 2. COMMITMENTS AND CONTINGENCIES A. Restructuring and Rate Matters (CL&P, PSNH, WMECO) Connecticut: On September 27, 2001, CL&P filed its application with the Connecticut Department of Public Utility Control (DPUC) for approval of the disposition of the proceeds from the sale of the Millstone units to Dominion Resources, Inc. This application described and requested DPUC approval for CL&P's treatment of its share of the proceeds from the sale. In accordance with Connecticut's electric industry restructuring legislation, CL&P was required to utilize any gains from the Millstone sale to offset stranded costs. There are certain contingencies related to this filing regarding the potential disallowance of what management believes were prudently incurred costs. Management believes the recoverability of these costs is probable. A decision from the DPUC is expected in the first half of 2002. New Hampshire: PSNH is required to supply transition service to its residential and small commercial customers until at least 57 months after customer choice was implemented in New Hampshire on May 1, 2001 (Competition Day), and requires that transition service be provided at fixed rates for certain classes of customers for the first 33 months after Competition Day. Although PSNH no longer applies SFAS No. 71 for the generation portion of its business, it expects to fully recover all operating costs related to its generation assets, including a return, under the terms of the Settlement Agreement. Massachusetts: During the first quarter of 2000, WMECO filed its first annual stranded cost reconciliation filing covering the period March 1, 1998 through December 31, 1999. The hearing and briefing processes related to this filing were completed during the second quarter of 2001. A Massachusetts Department of Telecommunications and Energy (DTE) decision is expected by the end of 2001. On March 30, 2001, WMECO also filed its second annual stranded cost reconciliation with the DTE for calendar year 2000 with the related review and hearing processes anticipated to be scheduled for the first half of 2002. The cumulative deferral of unrecovered stranded costs, as filed, is approximately $4 million. Management believes these costs are fully recoverable. B. Long-Term Contractual Arrangements (Select Energy) Select Energy, Inc. (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 $2.8 billion at September 30, 2001. These contracts extend through 2005 and thereafter as follows (millions of dollars): Year ---- 2001 $ 659.0 2002 1,382.4 2003 600.8 2004 72.2 2005 57.0 Thereafter 12.5 -------- Total $2,783.9 ======== 3. MARKET RISK AND RISK MANAGEMENT INSTRUMENTS (Select Energy, Yankee, Yankee Gas) Competitive Energy Subsidiaries: Select Energy provides both firm requirement energy services to its customers and engages in energy trading and marketing activities. Select Energy manages its exposure to risk from existing contractual commitments and provides risk management services to its customers through forward contracts, futures, over-the-counter swap agreements, and options (commodity derivatives). Select Energy has utilized the sensitivity analysis methodology to disclose the 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. Commodity Price Risk - Trading Activities: As a market participant in the Northeast area of the United States, Select Energy conducts commodity-trading activities in electricity and its related products, natural gas and oil and, therefore, experiences net open positions. Select Energy manages these open positions with strict policies which limit its exposure to market risk and require daily reporting to management of potential financial exposure. Commodity derivatives utilized for trading purposes are accounted for using the mark-to-market method, under EITF Issue No. 98-10. Under this methodology, these instruments are adjusted to market value, and the unrealized gains and losses are recognized in income in the current period in the consolidated statements of income as fuel, purchased and net interchange power and in the consolidated balance sheets as prepayments and other. The mark-to-market position at September 30, 2001, was a positive $55.4 million. 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, market 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 market, based on closing exchange prices. As of September 30, 2001, Select Energy has calculated the market price resulting from a 10 percent unfavorable change in forward market prices. That 10 percent change would result in approximately an $8 million decline in the fair value of the Select Energy trading portfolio. In the normal course of business, Select Energy also faces risks that are either nonfinancial or nonquantifiable. Such risks principally include credit risk, which is not reflected in the sensitivity analysis above. Commodity Price Risk - Nontrading Activities: Select Energy utilizes derivative financial and commodity instruments (derivatives), including futures and forward contracts, to reduce market risk associated with fluctuations in the price of electricity and natural gas sold under firm commitments with 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 supply requirements. These derivative instruments have been designated as cash flow hedging instruments. When conducting sensitivity analysis of the change in the fair value of Select Energy's electricity, natural gas and oil nontrading portfolio, which would result from a hypothetical change in the future market price of electricity, natural gas and oil, the fair value of the contracts are determined from models which 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 nontrading electricity, natural gas and oil contracts, assuming a 10 percent unfavorable change in forward market prices. As of September 30, 2001, an unfavorable 10 percent change in forward market price would have resulted in a decrease in fair value of approximately $22 million. The impact of a change in electricity, natural gas and oil prices on Select Energy's nontrading contracts on September 30, 2001, is not necessarily representative of the results that will be realized when these contracts are physically delivered. Select Energy also maintains natural gas service agreements with certain customers to supply gas at fixed prices for terms extending through 2003. Select Energy has hedged its gas supply risk under these agreements through NYMEX contracts. Under these contracts, the purchase price of a specified quantity of gas is effectively fixed over the term of the gas service agreements, which extend through 2003. As of September 30, 2001, the NYMEX contracts had a notional value of $102.5 million and a negative after-tax mark-to-market position of $18.1 million. Derivative Cash Flow Hedge Accounting: Derivative instruments recorded which were effective cash flow hedges resulted in an increase in other comprehensive income of $12.3 million, net of tax, upon the adoption of SFAS No. 133. During the first nine months of 2001, a negative $4.9 million, net of tax, was reclassified from other comprehensive income upon the conclusion of these hedged transactions and recognized in earnings. An additional $1.8 million, net of tax, was recognized in earnings for those derivatives that were determined to be ineffective. Also, during the third quarter of 2001, 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, 2001, other comprehensive income decreased by $44.8 million, net of tax. Accumulated other comprehensive income at September 30, 2001, was a negative $37.4 million, net of tax (decrease to equity), relating to hedged transactions and it is estimated that $30.1 million will be reclassified as a charge to earnings within the next twelve months. Cash flows from the hedge contracts are reported in the same category as cash flows from the hedged assets. Regulated Entities: Interest Rate Risk - Nontrading Activities: NU manages its interest rate risk exposure by maintaining a mix of fixed and variable rate debt. In addition, Yankee Energy System, Inc. (Yankee) has entered into an interest rate sensitive derivative. Yankee uses swap instruments with financial institutions to exchange fixed-rate interest obligations to a blend between fixed and variable-rate obligations without exchanging the underlying notional amounts. These instruments convert fixed interest rate obligations to variable rates. The notional amounts parallel the underlying debt levels and are used to measure interest to be paid or received and do not represent the exposure to credit loss. As of September 30, 2001, Yankee had outstanding agreements with a total notional value of $48 million and a positive mark-to-market position of $0.2 million, which is included within the $37.4 million reported for accumulated other comprehensive income related to hedging activities. Commodity Price Risk - Nontrading Activities: Yankee Gas Services Company (Yankee Gas) maintains a master swap agreement with one customer to supply gas at fixed prices for a 10-year term extending through 2005. Under this master swap agreement, the purchase price of a specified quantity of gas is effectively fixed over the term of the gas service agreement, which extends through 2005. As of September 30, 2001, the commodity swap agreement had a notional value of $18.5 million and a negative mark-to-market position of $1.3 million, net of tax, which is included within the $37.4 million reported for accumulated other comprehensive income related to hedging activities. 4. COMPREHENSIVE INCOME (NU, CL&P, PSNH, WMECO) The total comprehensive income, which includes all comprehensive income items, for the NU system is as follows: Nine Months Ended September 30, ------------------------------- 2001 2000 ---- ---- (Millions of Dollars) NU Consolidated $158.8 $153.5 CL&P 71.3 91.1 PSNH 63.4 57.8 WMECO 7.9 21.7 Accumulated other comprehensive income mark-to-market adjustments of NU's qualified cash flow hedging instruments are as follows: ------------------------------------------------------------------- (Millions of Dollars, Net of Tax) September 30, 2001 ------------------------------------------------------------------- Balance at January 1, 2001 (inception date) $ 12.3 ------ Hedged transactions recognized into earnings (4.9) Change in fair value (22.7) Cash flow transactions entered into for the period (22.1) ------ Net change associated with the current period hedging transactions (49.7) ------------------------------------------------------------------- Total mark-to-market adjustments included in accumulated other comprehensive loss $(37.4) Other accumulated other comprehensive income items 4.4 ------------------------------------------------------------------- Total accumulated other comprehensive loss $(33.0) ------------------------------------------------------------------- 5. EARNINGS PER SHARE (NU) Earnings per share (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 diluted EPS: --------------------------------------------------------------------- (Millions of Dollars, Nine Months Ended September 30, except share information) 2001 2000 --------------------------------------------------------------------- Income after interest charges $222.1 $163.7 Preferred dividends of subsidiaries 6.2 11.4 --------------------------------------------------------------------- Income before cumulative effect of accounting change $215.9 $152.3 Cumulative effect of accounting change, net of tax benefit (22.4) - --------------------------------------------------------------------- Net income $193.5 $152.3 --------------------------------------------------------------------- Basic EPS common shares outstanding (average) 137,120,689 140,829,337 Dilutive effect of employee stock options 337,005 620,065 --------------------------------------------------------------------- Diluted EPS common shares outstanding (average) 137,457,694 141,449,402 --------------------------------------------------------------------- Basic and Diluted EPS: Income before cumulative effect of accounting change $1.57 $1.08 Cumulative effect of accounting change, net of tax benefit (0.16) - --------------------------------------------------------------------- Net income $1.41 $1.08 --------------------------------------------------------------------- 6. SEGMENT INFORMATION (NU) The NU system is organized between regulated utilities (electric and gas since March 1, 2000) and competitive energy subsidiaries. The regulated utilities segment represented approximately 70 percent and 84 percent of the NU system's total revenues for the nine months ended September 30, 2001 and 2000, respectively, and is comprised of several business units. Regulated utilities revenues primarily are derived from residential, commercial and industrial customers and are not dependent on any single customer. The competitive energy subsidiaries segment has two customers with revenues in excess of 10 percent of its total revenues, one unaffiliated company and CL&P. The purchases by these customers represented approximately 12 percent and 24 percent, respectively, of total competitive energy subsidiaries' revenues for the nine months ended September 30, 2001. The purchases by these customers represented approximately 17 percent and 33 percent, respectively, of total competitive energy subsidiaries' revenues for the nine months ended September 30, 2000. The competitive energy subsidiaries segment in the following table includes Select Energy Services, Inc., a provider of energy management, demand-side management and related consulting services for commercial, industrial and institutional electric companies and electric utility companies; Holyoke Water Power Company, a company engaged in the production and distribution of electric power; Northeast Generation Company, a corporation that acquires and manages generation facilities; Northeast Generation Services Company, a corporation that maintains and services any fossil or hydroelectric facility that is acquired or contracted with for fossil or hydroelectric generation services, and its subsidiaries, and; Select Energy, a corporation engaged in the marketing, transportation, storage, and sale of energy commodities, at wholesale, in designated geographical areas and in the marketing of electricity to retail customers. Other, in the following table, includes the results of Mode 1 Communications, Inc., an investor in a fiber-optic communications network. Other also includes the results of the nonenergy related subsidiaries of Yankee. Interest expense included in Other primarily relates to the debt of NU parent. Inter-segment eliminations of revenues and expenses are also included in Other.
- ----------------------------------------------------------------------------------------- For the Nine Months Ended September 30, 2001 - ----------------------------------------------------------------------------------------- Competitive Eliminations (Millions of Regulated Utilities Energy and Dollars) Electric Gas Subsidiaries Other Total - ----------------------------------------------------------------------------------------- Operating revenues $ 3,311.8 $ 279.9 $ 2,101.5 $(585.5) $ 5,107.7 Operating expenses (3,072.9) (258.0) (2,075.3) 586.9 (4,819.3) - ----------------------------------------------------------------------------------------- Operating income 238.9 21.9 26.2 1.4 288.4 Other income 70.2 2.5 5.6 64.4 142.7 Interest charges (148.3) (10.6) (32.1) (18.0) (209.0) Preferred dividends (6.2) - - - (6.2) - ----------------------------------------------------------------------------------------- Income/(loss) before cumulative effect of accounting change 154.6 13.8 (0.3) 47.8 215.9 Cumulative effect of accounting change, net of tax benefit - - (22.0) (0.4) (22.4) - ----------------------------------------------------------------------------------------- Net income/(loss) $ 154.6 $ 13.8 $ (22.3) $ 47.4 $ 193.5 - ----------------------------------------------------------------------------------------- Total assets $ 9,176.9 $ 867.6 $ 863.8 $(615.4) $10,292.9 - -----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------- For the Nine Months Ended September 30, 2000 - ----------------------------------------------------------------------------------------- Competitive Eliminations (Millions of Regulated Utilities Energy and Dollars) Electric Gas Subsidiaries Other Total - ----------------------------------------------------------------------------------------- Operating revenues $ 3,550.3 $ 131.7 $ 1,456.5 $(759.2) $ 4,379.3 Operating expenses (3,229.2) (125.2) (1,414.4) 739.8 (4,029.0) - ----------------------------------------------------------------------------------------- Operating income/(loss) 321.1 6.5 42.1 (19.4) 350.3 Other income/(loss) 30.8 (2.9) 3.0 6.4 37.3 Interest charges (147.0) (8.7) (37.1) (31.1) (223.9) Preferred dividends (11.4) - - - (11.4) - ----------------------------------------------------------------------------------------- Net income/(loss) $ 193.5 $ (5.1) $ 8.0 $ (44.1) $ 152.3 - ----------------------------------------------------------------------------------------- Total assets $ 9,757.1 $ 873.7 $ 700.5 $(765.9) $10,565.4 - -----------------------------------------------------------------------------------------
7. SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES (NU) In conjunction with the Yankee acquisition on March 1, 2000, common stock was issued and debt was assumed as follows (millions of dollars): Fair value of assets acquired, net of liabilities assumed $ 712.5 Cash paid (261.4) NU common stock issued (217.1) ------- $ 234.0 ======= PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1. Property Tax Litigation - City of Meriden, Connecticut On August 29, 2001, Yankee Gas, CL&P and the City of Meriden (City) settled the pending lawsuit relating to the revaluation of personal property for the tax years 1991 through 1999. Pursuant to the terms of the settlement agreement, (1) the City paid Yankee Gas approximately $10 million and CL&P approximately $4.9 million (approximately $14.9 million in total), (2) Yankee Gas and CL&P agreed to file a satisfaction of judgment with the court and (3) the City agreed to withdraw its appeal. Also included in the settlement was the City's agreement to set the assessed values of the personal property of Yankee Gas and CL&P on the City's 2000 grand list at $17.3 million and $20.6 million, respectively. 2. Federal Energy Regulatory Commission (FERC) - Installed Capability (ICAP) Deficiency Charge On August 28, 2001, the FERC accepted in part and rejected in part the Independent System Operator's (ISO) interim deficiency charge proposal. Specifically, the FERC approved a $4.87 per kilowatt-month charge and rejected ISO's proposed adjustments that would have effectively reduced the charge to $2.00 or less. The FERC also ruled that all entities meeting their ICAP responsibilities would share in ICAP deficiency charge revenues. The FERC also directed ISO to file by December 3, 2001, a report on alternatives to the ICAP requirement, particularly the feasibility of a forward reserves market and using demand-side management to meet reserve capacity needs. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits Exhibit No. Description ----------- ----------- 10.1 Amended and Restated Receivables Purchase and Sale Agreement dated as of March 30, 2001 (CL&P and CL&P Receivables Corporation (CRC)) 10.1.1 Amendment No. 1 to the Purchase and Contribution Agreement between CL&P and CRC dated as of March 30, 2001 10.41.2 Amendment to Exhibit 10.41 to the NU Form 10-K for the year ended December 31, 2000, dated as of June 28, 2001 10.41.3 Amendment to Exhibit 10.41 to the NU Form 10-K for the year ended December 31, 2000, dated as of September 11, 2001 10.44.5 Supplemental Retirement Benefit with John H. Forsgren, dated as of August 8, 2001 10.44.6 Supplemental Compensation Arrangement with John H. Forsgren, dated as of September 5, 2001 10.44.7 Amendment to Exhibit 10.44 to the NU Form 10-K for the year ended December 31, 2000, dated as of September 19, 2001 10.46.4 Supplemental Compensation Arrangement with Cheryl W. Grise, dated as of September 17, 2001 10.46.5 Amendment to Exhibit 10.46 to the NU Form 10-K for the year ended December 31, 2000, dated as of September 19, 2001 15 Arthur Andersen LLP Letter Regarding Unaudited Financial Information (b) Reports on Form 8-K: NU filed a current report on Form 8-K dated July 10, 2001, disclosing: o The authorization by the NU Board of Trustees of the repurchase of up to 15 million NU common shares by July 1, 2003, and the election of two new trustees. NU filed a current report on Form 8-K dated July 24, 2001, disclosing: o NU's earnings press release for the second quarter and six months ended June 30, 2001. NU filed current reports on Form 8-K dated October 11, 2001, disclosing: o Earnings guidance for 2001 and 2002 and related presentation information. NU filed a current report on Form 8-K dated October 23, 2001, disclosing: o NU's earnings press release for the third quarter and nine months ended September 30, 2001. NU filed a current report on Form 8-K dated October 29, 2001, disclosing: o Earnings information for the twelve months ended September 30, 2001, for certain major businesses. SIGNATURES 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: November 8, 2001 By /s/ John H. Forsgren ---------------- ------------------------------ John H. Forsgren Vice Chairman, Executive Vice President and Chief Financial Officer Date: November 8, 2001 By /s/ John J. Roman ---------------- ------------------------------ John J. Roman Vice President and Controller - ------------------------------------------------------------------------------- SIGNATURES 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: November 8, 2001 By /s/ Randy A. Shoop ---------------- ------------------------------ Randy A. Shoop Treasurer Date: November 8, 2001 By /s/ John P. Stack ---------------- ------------------------------ John P. Stack Controller SIGNATURES 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: November 8, 2001 By /s/ David R. McHale ---------------- ------------------------------ David R. McHale Vice President and Treasurer Date: November 8, 2001 By /s/ John J. Roman ---------------- ------------------------------ John J. Roman Vice President and Controller - ------------------------------------------------------------------------------- SIGNATURES 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: November 8, 2001 By /s/ David R. McHale ---------------- ------------------------------ David R. McHale Vice President and Treasurer Date: November 8, 2001 By /s/ John J. Roman ---------------- ------------------------------ John J. Roman Vice President and Controller EX-10.1 3 clppurchagmt.txt AMENDMENT NO. 1 AMENDMENT NO. 1 AMENDMENT AGREEMENT dated as of March 30, 2001 between The Connecticut Light and Power Company, a Connecticut corporation ("Seller"), and CL&P Receivables Corporation, a Connecticut corporation ("Purchaser"). Preliminary Statements. (1) The Seller and the Purchaser are parties to a Purchase and Contribution Agreement dated as of September 30, 1997 (the "Agreement"; capitalized terms not otherwise defined herein shall have the meanings attributed to them in the Agreement) pursuant to which the Seller sells or contributes Receivables to the Purchaser from time to time; (2) The Seller and the Purchaser, desire to amend the Agreement; NOW, THEREFORE, the parties agree as follows: SECTION 1. Amendments to Definitions. Section 1.01 of the Agreement is amended by (a) amending and restating the definition of "Receivable" in its entirety as follows: "Receivable" means the accounts, general intangibles and other indebtedness (billed and unbilled) of an Obligor arising from the retail sale of electricity and related services by the Seller in Connecticut to such Obligor pursuant to a Contract as booked to Accounts 142 (excluding amounts booked to Account 142.04) and 173 as defined under the Federal Energy Regulatory Commission Chart of Accounts as utilized by the Seller, but excluding any obligation of such Obligor to pay finance charges and other amounts in the case of late payment and further excluding the RRB Charge. and (b) inserting the following definitions in their proper alphabetical order as follows: "RRB Charge" means the non-bypassable rate reduction bond charge permitted to be charged by the Seller to Obligors as part of a competitive transition assessment pursuant to the Financing Order of the Connecticut Department of Public Utility Control in DPUC-Docket No. 00-05-01, issued on November 8, 2000, supplemented December 12, 2000 and as further supplemented March 12, 2001, including, in case of special contract customers, the portion of the contract charge allocated to the RRB Charge, and which may increase or decrease from time to time as provided in such Financing Order. SECTION 2. Amendments to Agreement. The Agreement is amended by (a) amending and restating Section 4.01(j) in its entirety as follows: (j) Each Transferred Receivable, together with the Related Security, is a bona fide obligation of the Obligor purported to be liable thereon and is owned (prior to its sale or contribution hereunder) by the Seller free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser). When the Purchaser makes a Purchase or acquires by contribution any Transferred Receivable, it shall acquire valid and perfected first priority ownership of each Transferred Receivable and, subject to the Pro Rata RRB Interest, as such term is defined in the Sale Agreement, the Related Security, and Collections with respect thereto free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser), and no effective financing statement or other instrument similar in effect covering any Transferred Receivable, any interest therein, the Related Security or Collections with respect thereto is on file in any recording office except such as may be filed in favor of the Purchaser in accordance with this Agreement or in connection with any Adverse Claim arising solely as the result of any action taken by the Purchaser. (b) amending and restating Section 5.01(i)(i) in its entirety as follows: (i) From time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that the Purchaser or its assignee may reasonably request, to perfect, protect or more fully evidence the sale and contribution of Receivables under this Agreement, or to enable the Purchaser or its assignee to exercise and enforce its respective rights and remedies under this Agreement, including, without limitation, upon the request of the Purchaser or its assignee, (A) executing and filing such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable to perfect, protect or evidence such Transferred Receivables; and (B) subject to the last sentence of Section 5.01(g), delivering to the Purchaser copies of all Contracts relating to the Transferred Receivables and copies of all records relating to such Contracts and the Transferred Receivables, whether in hard copy or in magnetic tape or diskette format (which if in magnetic tape or diskette format shall be compatible with the Purchaser's computer equipment). In connection with the foregoing, the Seller hereby authorizes the Purchaser or its assignee to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Transferred Receivables and the Related Security, the related Contracts and the Collections with respect thereto without the signature of the Seller where permitted by law. The Purchaser or assignees making any such filing shall provide a copy thereof to the Seller. A photocopy or other reproduction of this Agreement shall be sufficient as a financing statement where permitted by law. (c) amending and restating the first full paragraph in Section 6.06 in its entirety as follows: Each Purchase and contribution of Receivables hereunder shall include the transfer to the Purchaser of all of the Seller's right, title to and interest in the records relating to such Receivables (subject to the Pro Rata RRB Interest, as such term is defined in the Sale Agreement) and shall include the right to use the Seller's computer software system to access and create such records. Such right shall be without royalty or payment of any kind, is coupled with an interest, and shall be irrevocable until all of the Transferred Receivables are either collected in full or become Defaulted Receivables. (d) amending and restating Section 7.01(e) in its entirety as follows: (e) The Seller shall fail to pay any principal of or premium or interest on any of its Debt (it being agreed that neither the Notes nor the Certificates [as those terms are defined in the Sale Agreement] are such an obligation) which is outstanding in a principal amount of at least $10,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) amending and restating Section 7.01(f) in its entirety as follows: (f) Any Purchase or contribution of Receivables hereunder, the Related Security and the Collections with respect thereto shall for any reason (but subject to the Pro Rata RRB Interest, as such term is defined in the Sale Agreement) cease to constitute valid and perfected ownership of such Receivables, Related Security and Collections free and clear of any Adverse Claim; or and (f) amending and restating Section 9.01 in its entirety as follows: SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Seller therefrom shall in any event be effective unless the same shall be in writing and signed by the Purchaser and, in the case of any amendment, also signed by the Seller, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings, except that certain of the provisions hereof are subject to the terms of the Intercreditor Agreement (as that term is defined in the Sale Agreement). SECTION 3. Conditions Precedent. The terms and provisions of this Amendment Agreement shall become effective upon receipt by Purchaser of (i) acknowledgment copies of proper Financing Statements (Form UCC-3) amending the existing Financing Statements filed in 1997 pursuant to subsection (c) of Section 3.01 of the Agreement to reflect the exclusion of the RRB Charge, in all jurisdictions where the original forms UCC-1 were filed; and (ii) the execution and delivery of an amendment and restatement to the Sale Agreement. SECTION 4. Confirmation of Agreement. Except as herein expressly amended, the Agreement is ratified and confirmed in all respects and shall remain in full force and effect in accordance with its terms. Each reference in the Agreement to "this Agreement" shall mean the Agreement as amended by this Amendment Agreement, and as hereinafter amended or restated. SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF). SECTION 6. Execution in Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page to this Amendment Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment Agreement. IN WITNESS WHEREOF, the parties have caused this Amendment Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE CONNECTICUT LIGHT AND POWER COMPANY By: _______________________________ Randy A. Shoop Title: Treasurer CL&P RECEIVABLES CORPORATION By:__________________________ Randy A. Shoop Title: Treasurer EX-10.1.1 4 receivagmt33001.txt RECEIVABLES PURCHASE AND SALES AGREEMENT U.S. $200,000,000 RECEIVABLES PURCHASE AND SALE AGREEMENT Dated as of September 30, 1997 As Amended and Restated as of March 30, 2001 Among CL&P RECEIVABLES CORPORATION as Seller THE CONNECTICUT LIGHT AND POWER COMPANY as Collection Agent and Originator CORPORATE ASSET FUNDING COMPANY, INC. as a Purchaser CITIBANK, N.A. as a Bank and CITICORP NORTH AMERICA, INC. as Agent RECEIVABLES PURCHASE AND SALE AGREEMENT Dated as of September 30, 1997 As Amended and Restated as of March 30, 2001 CL&P RECEIVABLES CORPORATION, a Connecticut corporation (the "Seller"), THE CONNECTICUT LIGHT AND POWER COMPANY, a Connecticut corporation, as Collection Agent and Originator, CORPORATE ASSET FUNDING COMPANY, INC., a Delaware corporation, CITIBANK, N.A. and CITICORP NORTH AMERICA INC., a Delaware corporation ("CNAI"), as agent (the "Agent") for the Purchasers and the Banks (as defined herein), agree as follows: PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in Article I of this Agreement. (2) The Seller has acquired, and may continue to acquire Receivables from the Originator, either by purchase or by contribution to the capital of the Seller, as determined from time to time by the Seller and the Originator. The Seller is prepared to sell undivided fractional ownership interests in the Receivables (referred to herein as "Receivable Interests"). (3) The Conduit and the Banks are prepared to purchase such Receivable Interests from the Seller on the terms set forth herein. (4) CNAI has been requested and is prepared to act as Agent. (5) The Act and the Financing Order have become effective and the Notes and the Certificates are being issued, the effect of which is to require several changes to the Original Agreement. (6) This Agreement is an amendment and restatement of the Receivables Purchase and Sale Agreement, dated as of September 30, 1997, as amended as of September 29, 1998, as of September 28, 1999 and as of September 27, 2000, among the Seller, the Conduit, Citibank and the Agent (the "Original Agreement"). NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Act" means Sections 8 to 14, inclusive, of Public Act 98-28, codified as 16-245e to 16-245k of the General Statutes of Connecticut. "Adverse Claim" means a lien, security interest, charge or encumbrance, or other right or claim of any Person. "Affiliate" when used with respect to a Person means any other Person controlling, controlled by or under common control with such Person. "Affiliated Obligor" means any Obligor which is an Affiliate of another Obligor. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time as Citibank's base rate; or (b) 1/2 of one percent above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three- week moving average being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three- week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing, in either case adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent. "Applicable Percentage" means, for any Settlement Period, the rate per annum set forth below corresponding, as of the first Business Day of such Settlement Period, to the actual ratings for the Originator's long-term public senior debt on such date (or, if the two ratings do not correlate on any such date, the lower of the two ratings): Public Debt Rating by Standard & Poor's and Moody's Applicable Percentage BBB/Baa2 (or higher) 1.00% BBB-/Baa3 1.25% BB+/Ba1 1.50% BB/Ba2 2.00% BB-/Ba3 2.25% "Assignee Rate" for any Settlement Period for any Receivable Interest means an interest rate per annum equal to the Eurodollar Rate plus the Applicable Percentage for such Settlement Period; provided, however, that in case of: (i) any Settlement Period on or prior to the first day of which a Purchaser or Bank shall have notified the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Purchaser or Bank to fund such Receivable Interest at the Assignee Rate set forth above (and such Purchaser or Bank shall not have subsequently notified the Agent that such circumstances no longer exist), (ii) any Settlement Period of one to (and including) 29 days, (iii) any Settlement Period as to which the Agent does not receive notice, by no later than 12:00 noon (New York City time) on the third Business Day preceding the first day of such Settlement Period, that the related Receivable Interest will not be funded by issuance of commercial paper, or (iv) any Settlement Period for a Receivable Interest the Capital of which allocated to the Purchasers or the Banks is less than $500,000, the "Assignee Rate" for such Settlement Period shall be an interest rate per annum equal to 0.25% per annum above the Alternate Base Rate in effect on the first day of such Settlement Period; provided further that the Agent and the Seller may agree in writing from time to time upon a different "Assignee Rate." "Average Dilution Ratio" means for any calendar month the average of the Dilution Ratios for the 12 most recently ended calendar months. "Average Maturity" means at any time that period of days equal to the average maturity of the Pool Receivables calculated by the Collection Agent in the then most recent Seller Report; provided that if the Agent shall determine that such calculation is incorrect, the Agent may recalculate such Average Maturity. "Bank Commitment" of any Bank means, (a) with respect to Citibank $100,000,000 or such amount as reduced by any assignment entered into between Citibank and other Banks; or (b) with respect to a Bank that has entered into an assignment with another Bank, the amount set forth therein as such Bank's Bank Commitment, in each case as such amount may be reduced by an assignment entered into between such Bank and an Eligible Assignee, and as may be further reduced (or terminated) pursuant to the next sentence. Any reduction (or termination) of the Purchase Limit pursuant to the terms of this Agreement shall reduce ratably (or terminate) each Bank's Bank Commitment. "Banks" means Citibank and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 9.01. "Budget Account" means an account of an Obligor with the Originator pursuant to which such Obligor is billed a fixed monthly fee for a fixed period of time at the end of which such Obligor's account with the Originator is adjusted. "Budget Account Credit Balance" means for any date the amount by which amounts paid by an Obligor pursuant to a Budget Account exceeds the amount for which such Obligor should have been billed by the Originator had such Obligor not been party to a Budget Account. "Business Day" means any day on which (i) banks are not authorized or required to close in New York City, and (ii) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market. "Capital" of any Receivable Interest means the original amount paid to the Seller for such Receivable Interest at the time of its Purchase by the Conduit or a Bank pursuant to this Agreement, in each case reduced from time to time by Collections distributed on account of such Capital pursuant to Section 2.06(d); provided that if such Capital shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. "Certificate Indenture" means the Certificate Indenture dated as of March 30, 2001, among the Certificate Issuer, the Delaware Trustee and the Certificate Trustee, as the same may be amended, modified or restated from time to time. "Certificate Issuer " means Connecticut RRB Special Purpose Trust CL&P-1, a Delaware business trust. "Certificate Trustee" means the Person acting as trustee under the Certificate Indenture. "Certificates" means the Connecticut RRB Special Purpose Trust CL&P- 1 Rate Reduction Certificates issued under the Certificate Indenture. "Citibank" means Citibank, N.A., a national banking association. "Collection Agent" means at any time the Person then authorized pursuant to Article VI to administer and collect Pool Receivables. "Collection Account" means Account # 9370121283 at Fleet National Bank, Hartford, Connecticut. "Collection Agent Fee" has the meaning specified in the Originator Purchase Agreement. "Collection Agent Fee Reserve" for any Receivable Interest at any time means the sum of (i) the unpaid Collection Agent Fee relating to such Receivable Interest accrued to such time plus (ii) an amount equal to (a) the Capital of such Receivable Interest on such date multiplied by (b) the product of (x) the percentage per annum at which the Collection Agent Fee is accruing on such date and (y) a fraction having the sum of the Average Maturity plus the Collection Delay Period (each as in effect at such date) as its numerator and 360 as its denominator. "Collection Delay Period" means 10 days or such other number of days as may be agreed to by the Agent and the Seller. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable, and any Collection of such Receivable deemed to have been received pursuant to Section 2.06. "Commitment Termination Date" means the earliest of (a) July 11, 2001, unless, prior to such date (or the date so extended pursuant to this clause), upon the Seller's request, made not more than 90 nor less than 45 days prior to the then Commitment Termination Date, one or more Banks having 100% of the Purchase Limit shall in their sole discretion consent, which consent shall be given not more than 30 days prior to the then Commitment Termination Date, to the extension of the Commitment Termination Date to the date occurring not more than 360 days after the then Commitment Termination Date; provided, however, that any failure of any Bank to respond to the Seller's request for such extension shall be deemed a denial of such request by such Bank, (b) the Facility Termination Date and (c) the date determined pursuant to Section 7.01. "Concentration Limit" means, with respect to any Obligor, 2% (or such higher percentage as is agreed to by the Agent) of the Outstanding Balance of all Pool Receivables (a "Normal Concentration Limit"), or such other percentage of the Outstanding Balance of all Pool Receivables, or such amount as may be designated for any Obligor by the Seller and agreed to for such Obligor by the Agent, in a notice to the Agent in substantially the form of Exhibit A (such other percentage or amount for any Obligor being a "Special Concentration Limit"), subject to cancellation thereof pursuant to Section 2.01; provided, however, that, in the case of an Obligor with one or more Affiliated Obligors which is or are Designated Obligors, the Concentration Limit shall be calculated as if such Obligor and such one or more Affiliated Obligors were one Obligor. "Conduit" means Corporate Asset Funding Company, Inc. and any successor or assign thereof that is a receivables investment company which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. "Contract" means the Tariffs and any agreement between the Originator and an Obligor, provided that such agreement does not vary the payment terms of such Obligor from those in the Tariffs or the Credit and Collection Policy. "Credit and Collection Policy" means those credit and collection policies and practices of the Originator in effect on the date hereof relating to the Receivables, as they may be modified in the manner permitted under Section 5.03(c). "Default Ratio" means the ratio (expressed as a percentage) computed as of the last day of each calendar month by dividing (i) the aggregate Outstanding Balance of all Pool Receivables that were Defaulted Receivables on such day or that would have been Defaulted Receivables on such day had they not been written off the books of the Originator or the Seller during such month by (ii) the aggregate Outstanding Balance of all Pool Receivables on such day. "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for 91 days or more from the original billing date for such payment and which does not relate to an Inactive Account, (ii) as to which the Obligor thereof, or any other Person obligated thereon or owning any Related Security in respect thereof, has taken any action, or suffered any event to occur, of the type described in Section 7.01(g), or (iii) which, consistent with the Credit and Collection Policy, would be written off the Originator's or the Seller's books as uncollectible. "Deferred Purchase Price" has the meaning specified in the Originator Purchase Agreement. "Delaware Trustee" means First Union Trust Company, National Association. "Delinquency Ratio" means the ratio (expressed as a percentage) computed as of the last day of each calendar month by dividing (i) the aggregate Outstanding Balance of all Pool Receivables that were Delinquent Receivables on such day by (ii) the aggregate Outstanding Balance of all Pool Receivables on such day. "Delinquent Receivable" means a Receivable that is not a Defaulted Receivable and: (i) as to which any payment, or part thereof, remains unpaid for 61 days or more from the original billing date for such payment; or (ii) which, consistent with the Credit and Collection Policy, would be classified as delinquent by the Originator or the Seller. "Designated Account" means an account in the name of, and owned by, CNAI, as Agent, designated by the Agent for the purpose of receiving collections of Pool Receivables directly from Obligors. "Designated Obligor" means, at any time, any Obligor unless the Seller or the Agent has, following three Business Days' notice in accordance with Section 2.01, advised the other that such Obligor shall not be considered a Designated Obligor. "Dilution" means any reduction in the Outstanding Balance of any Receivable, except for reductions resulting from payments or writeoffs with respect to such Receivable. "Dilution Horizon Factor" means the ratio (expressed as percentage) computed by dividing (i) the sum of (a) the aggregate Outstanding Balance of all Receivables created during the most recently ended calendar month and (b) the aggregate Outstanding Balance of Unbilled Receivables as determined on the last day of the most recently ended calendar month by (ii) the Net Receivables Pool Balance as of the last day of the most recently ended calendar month. "Dilution Ratio" means for any calendar month the greater of (i) the ratio (expressed as a percentage) of (A) the aggregate amount of Dilution with respect to the Receivables during such calendar month to (B) the aggregate original Outstanding Balance of all Receivables generated during the month preceding the most recently ended calendar month and (ii) 0.5%. "Dilution Volatility Factor" means, as of the last day of each calendar month, the product (expressed as a percentage) of (i) the amount by which (A) the highest Dilution Ratio for any of the twelve most recently ended calendar months exceeds (B) the average of the Dilution Ratios for the twelve most recently ended calendar months and (ii) a fraction equal to (A) the highest Dilution Ratio for any of the twelve most recently ended calendar months divided by (B) the average of the Dilution Ratios for the twelve most recently ended calendar months. "DPUC " means the Connecticut Department of Public Utility Control. "Eligible Assignee" means (a) CNAI, any of its Affiliates, any Person managed by Citibank or CNAI or any of their Affiliates or (b) any financial or other institution acceptable to the Agent. "Eligible Receivable" means, at any time and with respect to any Receivable Interest, a Receivable: (i) the Obligor of which is a United States resident and is not a government or a governmental subdivision or agency (including, without limitation, any such government, subdivision or agency that has the right to offset obligations to the Originator with tax-related claims of any kind), except that Receivables of governmental Obligors will be permitted to the extent that the aggregate Outstanding Balance of such Receivables does not exceed 15% of the aggregate Outstanding Balance of all Pool Receivables; (ii) the Obligor of which, at the time of the purchase of an undivided percentage ownership interest in such Receivable, is a Designated Obligor; (iii) which, at the time of the purchase of an undivided percentage ownership interest in such Receivable, is not a Delinquent Receivable or a Defaulted Receivable; (iv) which does not relate to an Inactive Account and which, according to the Contract related thereto, is required to be paid in full within 30 days of the original billing date therefor; (v) the Outstanding Balance of which, at the time of the purchase of an undivided percentage ownership interest in such Receivable, does not, when calculated substantially as provided in the Seller Report, exceed the Concentration Limit of the Obligor thereon; (vi) which arises under a Contract which has been duly authorized and which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms and is not subject to any dispute, offset, counter-claim or defense whatsoever (except the discharge in bankruptcy of such Obligor); (vii) which, together with the Contract related thereto, does not contravene in any material respect any law, rule or regulation applicable thereto (including, without limitation, any law, rule or regulation relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which none of the Seller, the Originator or the Obligor is in violation of any such law, rule or regulation in any material respect; (viii) which (A) satisfies all applicable requirements of the Credit and Collection Policy and (B) complies with such other reasonable criteria and requirements (other than those relating to the collectibility of such Receivable) as the Agent may from time to time specify to the Seller following 30 days' notice; (ix) which is an account receivable representing all or part of the sales price of merchandise, insurance or services, within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended; (x) a purchase of which with the proceeds of notes would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (xi) which is an "account" within the meaning of Section 9-106 of the UCC of all applicable jurisdictions; (xii) which is denominated and payable only in United States dollars in the United States of America; and (xiii) as to which, at or prior to the time of purchase hereunder, the Agent has not notified the Seller that the Agent has determined, in its sole discretion, that such Receivable (or class of Receivables) is not acceptable for purchase hereunder. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Rate" means, for any Settlement Period, an interest rate per annum equal to the rate per annum at which deposits in U.S. dollars are offered by the principal office of Citibank in London, England to prime banks in the London interbank market at 11:00 A.M. (London Time) two Business Days before the first day of such Settlement Period in an amount substantially equal to the Capital associated with such Settlement Period on such first day and for a period equal to such Settlement Period. "Eurodollar Rate Reserve Percentage" of any Purchaser or Bank for any Settlement Period in respect of which Yield is computed by reference to the Eurodollar Rate means the reserve percentage applicable two Business Days before the first day of such Settlement Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) (or if more than one such percentage shall be applicable, the daily average of such percentages for those days in such Settlement Period during which any such percentage shall be so applicable) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Purchaser or Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Liabilities is determined) having a term equal to such Settlement Period. "Event of Termination" has the meaning specified in Section 7.01. "Facility" means the willingness of the Conduit to consider, in its sole discretion pursuant to Article II, or the obligation of the Banks to make pursuant to Article II, the purchase from the Seller of undivided percentage interests in Pool Receivables by making Purchases of Receivable Interests or reinvestments from time to time. "Facility Termination Date" means the earlier of July 11, 2001 or the date of termination of the Facility pursuant to Section 2.02(c) or Section 7.01. "Fee Agreement" means the agreement dated the date of the Original Agreement between the Seller and the Agent, as the same may be amended or restated from time to time, with respect to the fees to be paid by or on behalf of the Seller in connection with this Agreement. "Financing Order" means the order of the DPUC, in DPUC- Docket No. 00-05-01, issued on November 8, 2000, as supplemented December 12, 2000, and as further supplemented March 12, 2001. "Inactive Account" means an account of an Obligor which has been sent a final bill. "Incipient Event of Termination" means an event which would constitute an Event of Termination but for the requirement that notice be given or time elapse or both. "Intercreditor Agreement" means that certain Inter- Creditor Agreement dated as of March 30, 2001, among the Agent, Citibank, the Note Trustee, the Seller, the Collection Agent (in its capacities as Collection Agent under this Agreement and as the Servicer under the Servicing Agreement) and the SPE, consented to by the Certificate Trustee, the Delaware Trustee and the Certificate Issuer, as the same may be amended, modified or restated from time to time. "Liquidation Day" means, for any Receivable Interest, (i) each day during a Settlement Period for such Receivable Interest on which the conditions set forth in Section 3.02 are not satisfied, and (ii) each day which occurs on or after the Termination Date for such Receivable Interest. "Liquidation Fee" means, for any Settlement Period during which a Liquidation Day occurs, the amount, if any, by which (i) the additional Yield (calculated without taking into account any Liquidation Fee or any shortened duration of such Settlement Period) which would have accrued during such Settlement Period on the reductions of Capital of the Receivable Interest relating to such Settlement Period had such reductions remained as Capital exceeds (ii) the income, if any, received by the Purchasers' investing the proceeds of such reductions of Capital. "Loss and Dilution Percentage" means for any calendar month the greater of (i) the sum of (A) the product of (x) the highest of the Loss Ratios as of the last day of each of the twelve most recently ended calendar months, (y) the Loss Horizon Factor as of the last day of the most recently ended calendar month and (z) 1.6 plus (B) the product of (a) the Average Dilution Ratio for the most recently ended calendar month, (b) 1.6 and (c) the Dilution Horizon Factor as of the most recently ended calendar month plus (C) the product of (a) the Dilution Volatility Factor as of the last day of the most recently ended calendar month and (b) the Dilution Horizon Factor as of the last day of the most recently ended calendar month and (ii) the Minimum Percentage as of the last day of the most recently ended calendar month. "Loss and Dilution Reserve" means, for any Receivable Interest on any date, an amount equal to the Capital of such Receivable Interest at the close of business of the Collection Agent on such date multiplied by the Loss and Dilution Percentage on such date. "Loss Horizon Factor" means for any date the ratio (expressed as a percentage) computed as of the last day of the most recently ended calendar month by dividing (i) the aggregate Outstanding Balance of all Receivables created during the two most recently ended calendar months plus the Unbilled Receivables for the most recent calendar month by (ii) the Net Receivable Pool Balance as of such date. "Loss Ratio" means for any date the average of the ratios (expressed as a percentage) for each of the three most recently ended calendar months computed as of the last day of each such calendar month determined by dividing the sum of (i) the gross writeoffs for such calendar month, (ii) increases, if any, in the outstanding balance of accounts designated by the Originator as "hardship accounts" as of the last day of such calendar month over the outstanding balance of such accounts as of the last day of the preceding calendar month and (iii) additions to Inactive Accounts for such calendar month by the aggregate original Outstanding Balance of Receivables that were created during the fifth preceding calendar month. For purposes of this definition, "additions to Inactive Accounts" for any calendar month shall be (A) the outstanding balance of Inactive Accounts as of the last day of the most recently ended calendar month less (B) the difference between (x) the outstanding balance of Inactive Accounts as of the last day of the month preceding the most recently ended calendar month and (y) gross writeoffs for the most recently ended calendar month; provided, however, that if the amount calculated under this sentence shall, for any date, be a negative number, then, for purposes of calculating the Loss Ratio on such date, the amount set forth in clause (iii) above shall be zero. "Loss-to-Liquidation Ratio" means for any calendar month the ratio (expressed as a percentage) computed as of the last day of such calendar month by dividing (i) the aggregate Outstanding Balance of all Pool Receivables written off by the Collection Agent or the Seller, or which should have been written off by the Collection Agent or the Seller in accordance with its Credit and Collection Policy, during such calendar month by (ii) the aggregate amount of Collections of Pool Receivables actually received during such calendar month. "Minimum Percentage" means on any date the sum of (i) the product of (A) 4 and (B) the Normal Concentration Limit in effect on such date and (ii) the product of (A) the Dilution Horizon Factor on such date and (B) the Average Dilution Ratio on such date. "Moody's" means Moody's Investors Service, Inc. "Net Receivables Pool Balance" means at any time the Outstanding Balance of Eligible Receivables then in the Receivables Pool reduced by the sum of (i) the Outstanding Balance of such Eligible Receivables that are then Defaulted Receivables or Delinquent Receivables or arise from Inactive Accounts, (ii) the aggregate amount by which the Outstanding Balance of Eligible Receivables (other than Defaulted Receivables or Delinquent Receivables) of any Obligor or group of Obligors exceeds the product of (A) the Concentration Limit of such Obligor or group of Obligors multiplied by (B) the Outstanding Balance of the Receivables then in the Receivables Pool and (iii) the sum of all Budget Account Credit Balances. "Normal Concentration Limit" has the meaning specified in the definition of "Concentration Limit." "Note Indenture" means the Note Indenture dated as of March 30, 2001, between the SPE, as Note Issuer, and the Note Trustee, as the same may be amended, modified or restated from time to time. "Notes" means the CL&P Funding LLC Notes issued under the Note Indenture. "Note Trustee" means the Person acting as trustee under the Note Indenture. "Obligor" means a Person obligated to make payments pursuant to a Contract. "Original Agreement" has the meaning specified in the Preliminary Statements. "Originator" means The Connecticut Light and Power Company, a Connecticut corporation. "Originator Purchase Agreement" means the Purchase and Contribution Agreement, dated the date of the Original Agreement, between the Originator, as seller, and the Seller, as purchaser, as the same may be amended, modified or restated from time to time. "Other Corporations" means the Originator and all of its Subsidiaries except the Seller. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Percentage" of any Bank means (a) with respect to Citibank the percentage set forth on the signature page to this Agreement, or such amount to which such percentage is reduced by an assignment entered into with an Eligible Assignee, and (b) with respect to a Bank that has entered into an assignment, the amount set forth therein as such Bank's Percentage, or such amount to which such percentage is reduced by an assignment entered into between such Bank and an Eligible Assignee. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, limited liability company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Pool Receivable" means a Receivable in the Receivables Pool. "Pro Rata RRB Interest " has the meaning specified in Section 4.01(i). "Public Disclosure Documents" means (i) the Originator's Annual Report on Form 10-K for the year ending December 31, 1996, (ii) the Originator's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, Northeast Utilities' reports on Form 8-K dated January 20, 1997, February 20, 1997, February 28, 1997, April 11, 1997, June 26, 1997, July 22, 1997 and August 19, 1997 and (iv) the Originator's Registration Statement No. 333-30911 on Form S-1, as amended. "Purchase" means the purchase of a Receivable Interest from the Seller, in accordance with Section 2.03(a). "Purchase and Sale Agreement" means the Transition Property Purchase and Sale Agreement dated as of March 30, 2001, between the SPE, as Note Issuer and the Originator, as Seller, as the same may be amended, modified or restated from time to time. "Purchase Limit" means $100,000,000, as such amount may be reduced pursuant to Section 2.02; provided, however, that at no time shall the Purchase Limit exceed the aggregate Bank Commitments in effect at such time. References to the unused portion of the Purchase Limit shall mean, at any time, the Purchase Limit, as then reduced pursuant to Section 2.02(c), minus the then outstanding Capital of Receivable Interests under this Agreement. "Purchaser" means the Conduit and all other owners by assignment or otherwise of a Receivable Interest (other than Banks) and, to the extent of the undivided interests so purchased, shall include any participants. "Purchaser Rate" for any Settlement Period for any Receivable Interest means, to the extent the Conduit funds such Receivable Interest for such Settlement Period by issuing commercial paper, the per annum rate equivalent to the weighted average of the per annum rates paid or payable by the Conduit from time to time as interest on or otherwise (by means of interest rate hedges or otherwise) in respect of those promissory notes issued by the Conduit that are allocated, in whole or in part, by the Agent (on behalf of the Conduit) to fund the purchase or maintenance of such Receivable Interest during such Settlement Period as determined by the Agent (on behalf of the Conduit) and reported to the Seller, which rates shall reflect and give effect to the commissions of placement agents and dealers in respect of such commercial paper notes, to the extent such commissions are allocated, in whole or in part, to such commercial paper notes by the Agent (on behalf of the Conduit); provided, however, that if any component of such rate is a discount rate, in calculating the 'Purchaser Rate' for such Settlement Period the Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. "Receivable" means the accounts, general intangibles and other indebtedness (billed and unbilled) of an Obligor arising from the retail sale of electricity and related services by the Originator in Connecticut to such Obligor pursuant to a Contract as booked to Accounts 142 (excluding amounts booked to Account 142.04) and 173 as defined under the Federal Energy Regulatory Commission Chart of Accounts as utilized by the Originator, but excluding any obligation of such Obligor to pay finance charges and other amounts in the case of late payment and further excluding the RRB Charge. "Receivable Interest" means, at any time, an undivided percentage ownership interest in all Receivables in the Receivables Pool and in all Related Security with respect to such Pool Receivables and all Collections with respect to, and other proceeds of, such Pool Receivables equal to the Receivable Interest Percentage. "Receivable Interest Percentage" means, with respect to any Receivable Interest, a percentage equal to the following fraction: C + YR + LR + CAFR __________________ NRPB where: C = the Capital of such Receivable Interest at the time of computation. YR = the Yield Reserve of such Receivable Interest at the time of computation. LR = the Loss and Dilution Reserve of such Receivable Interest at the time of computation. CAFR = the Collection Agent Fee Reserve of such Receivable Interest at the time of computation. NRPB = the Net Receivables Pool Balance at the time of computation. "Receivables Pool" means at any time the aggregation of each then outstanding Receivable in respect of which the Obligor is a Designated Obligor at such time or was a Designated Obligor on the date of the initial creation of an interest in such Receivable under this Agreement. "Regulatory Authority" means each of the DPUC, Federal Energy Regulatory Commission, and any successor commission thereto. "Related Security" means, with respect to any Receivable: (i) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; (ii) all guarantees, indemnities, warranties, insurance policies and proceeds and premium refunds thereof and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; and (iii) the Contract and all other books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) relating to such Receivable and the related Obligor. "Report" means each Advice Letter and Certificate of Compliance, as each of those terms is defined in the Servicing Agreement and any notice or report sent pursuant to Section 3.01(b)(1) or Section 4.01(d) of the Servicing Agreement. "RRB Charge" means the non-bypassable rate reduction bond charge permitted to be charged by the Originator to Obligors as part of a competitive transition assessment pursuant to the Financing Order, including, in case of special contract customers, the portion of the contract charge allocated to the RRB Charge, and which may increase or decrease from time to time as provided in the Financing Order. "Seller Report" means a report in substantially the form of Exhibit B hereto and containing such additional information as the Agent may reasonably request from time to time, furnished by the Collection Agent to the Agent. "Servicing Agreement" means the Transition Property Servicing Agreement dated as of March 30, 2001, between the SPE, as Note Issuer and the Originator, as Servicer, as the same may be amended, modified or restated from time to time. "Settlement Date" means the third Business Day after the end of each Settlement Period during the term of this Agreement; provided that with respect to any Settlement Period for which Yield is computed by reference to the Assignee Rate and such rate is known prior to the last day of the Settlement Period, the Settlement Date shall be the last day of the Settlement Period. "Settlement Period" means: (a) in the case of any Settlement Period in respect of which Yield is computed by reference to the Purchaser Rate, each successive period commencing on the 19th day of each calendar month during the term of this Agreement and ending on the 18th day of the succeeding calendar month during the term of this Agreement; provided, however, that in the case of any Settlement Period for any Receivable Interest which commences before the Termination Date for such Receivable Interest and would otherwise end on a date occurring after such Termination Date, such Settlement Period shall end on such Termination Date and the duration of each Settlement Period which commences on or after the Termination Date for such Receivable Interest may be any period (including, without limitation, a period of one day) as shall be selected from time to time by the Agent; (b) in the case of any Settlement Period in respect of which Yield is computed by reference to the Assignee Rate, each successive period commencing on the 19th day of each calendar month during the term of this Agreement and ending on the 18th day of the succeeding calendar month during the term of this Agreement; provided, however, that any Settlement Period which is other than the monthly Settlement Period shall be of such duration as shall be selected by the Agent; and (c) in the case of any Settlement Period in respect of which Yield is computed by reference to the Alternate Base Rate, such Settlement Period shall be of such duration as shall be selected by the Agent. "Significant Subsidiary" means the Seller and any Subsidiary having total assets exceeding 10% of consolidated total assets of the Originator. "SPE" means CL&P Funding LLC, a Delaware limited liability company. "Special Concentration Limit" has the meaning specified in the definition of "Concentration Limit." "Standard & Poor's" means Standard & Poor's Ratings Group. "Subsidiary" means any corporation of which securities having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Seller or the Originator, as the case may be, or one or more Subsidiaries, or by the Seller or the Originator, as the case may be, and one or more Subsidiaries. "Supplemental Collection Account" means Account # 5044- 3708 at Fleet National Bank, Hartford, Connecticut, which is the account to which Obligors are directed to make ACH payments on Receivables. "Tangible Net Worth" means at any time the excess of (i) the Outstanding Balance of all Receivables plus cash and cash equivalents of the Seller at such time minus (ii) the sum at such time of (a) the Outstanding Balance of such Receivables which have become Defaulted Receivables, (b) Capital, Yield Reserve, Loss and Dilution Reserve and Collection Agent Fee Reserve plus (c) the Deferred Purchase Price. "Tariffs" means the tariffs described in Exhibit C, which have been approved by the governing Regulatory Authority, as hereafter amended or modified by the governing Regulatory Authority, pursuant to which the Originator provides electricity to the Obligors and the Obligors are obligated to pay for such electricity. "Termination Date" for any Receivable Interest means (i) in the case of a Receivable Interest owned by a Purchaser, the earlier of (a) the Business Day which the Seller or the Agent so designates by notice to the other at least three Business Days (or such shorter period as is required under the circumstances, but in any event not less than one Business Day) in advance for such Receivable Interest and (b) the Facility Termination Date and (ii) in the case of a Receivable Interest owned by a Bank, the earlier of (a) the Business Day which the Seller so designates by notice to the Agent at least three Business Days (or such shorter period as is required under the circumstances, but in any event not less than one Business Day) in advance for such Receivable Interest and (b) the Commitment Termination Date. "Transaction Document" means any of this Agreement, the Originator Purchase Agreement and all other agreements and documents delivered and/or related hereto or thereto. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. "Unbilled Receivable" means a Receivable which has not yet been billed to an Obligor. "Yield" means: (i) for each Receivable Interest for any Settlement Period to the extent the Conduit will be funding such Receivable Interest during such Settlement Period through the issuance of commercial paper, PR x C x ED + LF/360 (ii) for each Receivable Interest for any Settlement Period to the extent (x) the Purchasers will not be funding such Receivable Interest during such Settlement Period through the issuance of commercial paper or (y) the Banks will be funding such Receivable Interest, AR x C x ED + LF/360 where: AR = the Assignee Rate for such Receivable Interest for such Settlement Period C = the Capital of such Receivable Interest during such Settlement Period ED = the actual number of days elapsed during such Settlement Period LF = the Liquidation Fee, if any, for such Receivable Interest for such Settlement Period PR = the Purchaser Rate for such Receivable Interest for such Settlement Period provided that no provision of this Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law; and provided further that Yield for any Receivable Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. "Yield Reserve" for any Receivable Interest at any time means the sum of (i) the Liquidation Yield at such time for such Receivable Interest, and (ii) the then accrued and unpaid Yield for such Receivable Interest. For purposes of this definition, (a) "Liquidation Yield" means, for any Receivable Interest on any date, an amount equal to the Rate Variance Factor on such date multiplied by the product of (i) the Capital of such Receivable Interest on such date and (ii) the product of (a) the Assignee Rate for such Receivable Interest for a 30- day period deemed to commence on such date and (b) a fraction having the sum of the Average Maturity plus the Collection Delay Period (each as in effect at such date) as its numerator and 360 as its denominator; and (b) "Rate Variance Factor" means a number greater than one that reflects the potential variance in selected interest rates over a period of time designated by the Agent, as computed by the Collection Agent each month and set forth in the Seller Report in accordance with the provisions thereof; provided that the factors used in computing the "Rate Variance Factor" may be changed from time to time in accordance with industry standards upon at least five days' prior notice by the Agent to the Collection Agent. SECTION 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in effect in the State of New York and not specifically defined herein, are used herein as defined in such Article 9. References herein to Receivables "generated" or "created" during any period shall mean all Receivables billed during such period. SECTION 1.03. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES SECTION 2.01. Designated Obligors; Special Concentration Limits. Either the Seller or the Agent may cancel the designation of an Obligor as a Designated Obligor or any Special Concentration Limit for any Obligor, by notice in substantially the form of Exhibit D delivered by it to the other at least three Business Days prior to the date on which such cancellation shall become effective. Such notice of cancellation shall be applicable only to Receivable Interests purchased on and after its effective date. SECTION 2.02. Purchase Facility. (a) On the terms and conditions hereinafter set forth, the Conduit may, in its sole discretion, and the Banks shall, ratably in accordance with their respective Bank Commitments, purchase Receivable Interests from the Seller by making Purchases through the Agent, for the benefit of the Conduit or the Banks, as the case may be, from time to time during the period from the date hereof to the Facility Termination Date (in the case of the Conduit) and to the Commitment Termination Date (in the case of the Banks). Under no circumstances shall the Conduit make any Purchase of a Receivable Interest, or the Banks be obligated to make any such Purchase if (i) after giving effect to such Purchase, the outstanding Capital of Receivable Interests owned by all Purchasers and all Banks would exceed the Purchase Limit or (ii) in the case of the Conduit, a notice of termination in whole of the Purchase Limit has been delivered to the Seller by the Agent and has become effective. Nothing in this Agreement shall be deemed to be or construed as a commitment by the Conduit to purchase, or a commitment by the Seller to sell, any Receivable Interest at any time. (b) The Agent, on behalf of the Purchasers, may, at any time, by written notice to the Seller terminate in whole the Purchase Limit, such termination to become effective at the close of business on the last day of the Settlement Period following the Settlement Period in which such notice is given. (c) The Seller may, upon at least five Business Days' notice to the Agent, terminate in whole or reduce in part the unused portion of the Purchase Limit; provided, however, that for purposes of this Section 2.02(c), the unused portion of the Purchase Limit shall be computed as the excess of (i) the Purchase Limit immediately prior to giving effect to such termination or reduction over (ii) the aggregate Capital of all Receivable Interests outstanding under this Agreement; provided, further, that each partial reduction shall be in the amount of at least $5,000,000 and shall be an integral multiple of $1,000,000. (d) Until the Agent gives the Seller the notice provided in Section 3.02(b)(iv), the Agent, on behalf of the Purchasers which own Receivable Interests, may have the Collections attributable to such Receivable Interests automatically reinvested pursuant to Section 2.06 in additional undivided percentage interests in the Pool Receivables by making an appropriate readjustment of the Receivable Interest Percentage. The Agent, on behalf of the Banks which own Receivable Interests, shall have the Collections attributable to such Receivable Interests automatically reinvested pursuant to Section 2.06 in additional undivided percentage interests in the Pool Receivables by making an appropriate readjustment of such Receivable Interest Percentage. (e) Interests in all Receivable in existence on the date of the initial Purchase (and all related security with respect to such Receivables) (collectively, the "Sold Receivables") have heretofore been sold to the Agent, on behalf of the Purchasers and the Banks, pursuant to the Original Purchase Agreement (as such term is defined in the Originator Purchase Agreement). The Seller, with the consent of the Agent and the Originator, hereby assumes, as of the date of the initial Purchase hereunder, all of the Originator's rights and obligations under the Original Purchase Agreement with respect to the Sold Receivables; the Seller, the Agent and the Conduit agree that from and after the initial Purchase hereunder the terms of the Seller's rights and obligations with respect to the Sold Receivables shall be governed by this Agreement and the Original Purchase Agreement shall terminate; and both the Seller and the Conduit agree that the purchase price for the initial Purchase hereunder shall be reduced by the aggregate purchase price received by the Originator with respect to the Sold Receivables under the Original Purchase Agreement. SECTION 2.03. Making Purchases from the Seller. (a) Each Purchase by the Conduit or the Banks shall be made on at least three Business Days' notice from the Seller to the Agent. Each such notice of a Purchase shall specify (i) the amount requested to be paid to the Seller (such amount, which shall not be less than $5,000,000, being referred to herein as the initial "Capital" of the Receivable Interest then being purchased) and (ii) the date of such Purchase (which shall be a Business Day). The Agent shall promptly thereafter transmit such request to the Conduit and the Banks. The Agent shall promptly thereafter verbally notify the Seller whether the Conduit has determined to make a Purchase and, if so, whether all of the terms specified by the Seller are acceptable to the Conduit. If the Conduit has determined not to make a proposed Purchase, the Agent shall promptly notify all of the Banks concurrently by telecopier, telex or cable specifying the date of such Purchase, each Bank's Percentage multiplied by the aggregate amount of Capital of the Receivable Interest being purchased and whether the Yield for such Receivable Interest is calculated based on the Eurodollar Rate (which may be selected only if such notice is given at least two Business Days prior to the purchase date) or the Alternate Base Rate. (b) On the date for the Purchase of a Receivable Interest, the Conduit or the Banks, as the case may be, shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Agent at its address specified on the signature page to this Agreement an amount equal to the initial Capital of such Receivable Interest in same day funds. After receipt by the Agent of such funds, the Agent will make such funds immediately available to the Seller at Fleet National Bank, Hartford, Connecticut, ABA # 011500010, Account # 9370212175, or at such other account as the Seller may notify the Agent in writing. (c) Effective on the date of each Purchase pursuant to this Section 2.03 and each reinvestment, the Seller hereby sells and assigns to the Agent, for the benefit of the parties making such Purchase, an undivided percentage ownership interest, to the extent of the Receivable Interest Percentage, in each Pool Receivable then existing and in the Related Security and Collections with respect thereto. (d) Notwithstanding the foregoing, a Bank shall not be obligated to make Purchases under this Section 2.03 at any time in an amount which would exceed such Bank's Bank Commitment less (in the case of any Bank other than Citibank) the outstanding and unpaid amount of any purchases made by such Bank under any asset purchase agreement related hereto. Each Bank's obligation shall be several, such that the failure of any Bank to make available to the Seller any funds in connection with any Purchase shall not relieve any other Bank of its obligation, if any, hereunder to make funds available on the date of such Purchase, but no Bank shall be responsible for the failure of any other Bank to make funds available in connection with any Purchase. SECTION 2.04. Receivable Interest Percentage Computation. The Receivable Interest Percentage shall be initially computed on the date of purchase of the applicable Receivable Interest. Thereafter until the Termination Date for such Receivable Interest, such Receivable Interest Percentage shall be automatically recomputed (or deemed to be recomputed) on each day other than a Liquidation Day. Any Receivable Interest Percentage, as computed (or deemed recomputed) as of the day immediately preceding the Termination Date for such Receivable Interest, shall thereafter remain constant. Such Receivable Interest shall become zero when Capital thereof and Yield thereon shall have been paid in full, and all other amounts owed by the Seller hereunder to the Purchasers, the Banks or the Agent are paid and the Collection Agent shall have received the accrued Collection Agent Fee thereon. SECTION 2.05. Fees. (a) The Seller shall pay to the Agent certain fees in the amounts and on the dates set forth in the Fee Agreement. (b) In consideration of the purchase by the Purchaser and/or the Banks of Receivable Interests as herein provided, the Seller agrees to pay to the Collection Agent the Collection Agent Fee. The Collection Agent Fee shall be payable only from Collections pursuant to, and subject to the priority of payment set forth in, Section 2.06. SECTION 2.06. Settlement Procedures. (a) Collection of the Pool Receivables shall be administered by a Collection Agent, in accordance with the terms of Article VI of this Agreement. The Seller shall provide to the Collection Agent (if other than the Seller) on a timely basis all information needed for such administration, including notice of the occurrence of any Liquidation Day and current computations of the Receivable Interest Percentage. (b) In the event that both S&P and Moody's shall lower the Originator's long term public unsecured debt securities rating to below BBB, in the case of S&P, and Baa2, in the case of Moody's, within two Business Days following its receipt of any item of payment with respect to the Pool Receivables (including, without limitation, cash, checks, money orders, wire transfers and automated clearing house payments), the Collection Agent shall deposit Collections into the Collection Account. Except during the continuance of an Event of Termination or Incipient Event of Termination or as otherwise required in this Agreement, funds received in the Collection Account shall be transferred to an account designated by the Seller for the benefit of the Collection Agent. The Collection Agent shall, on each day on which it receives any such funds: (i) set aside on its books and hold in trust for the Purchasers or the Banks that hold such Receivable Interest out of the applicable Receivable Interest Percentage of such Collections an amount equal to the Yield and Collection Agent Fee accrued through such day for such Receivable Interest and not previously set aside; (ii) if such day is not a Liquidation Day for such Receivable Interest, reinvest with the Seller on behalf of the Purchasers or the Banks that hold such Receivable Interest the percentage of such Collections represented by such Receivable Interest Percentage, to the extent representing a return of Capital, by recomputation of such Receivable Interest Percentage pursuant to Section 2.04; (iii) if such day is a Liquidation Day for such Receivable Interest, set aside, hold in trust and segregate for the Purchasers or the Banks that hold such Receivable Interest the entire remainder of such percentage of Collections; provided that if amounts are set aside and held in trust on any Liquidation Day occurring prior to the Termination Date, and thereafter during such Settlement Period the conditions set forth in Section 3.02 are satisfied or waived by the Agent, such previously set aside amounts shall, to the extent representing a return of Capital, be reinvested in accordance with the preceding subsection (ii) on the day of such subsequent satisfaction or waiver of conditions; and (iv) during such times as amounts are required to be reinvested in accordance with the foregoing subsection (ii) or the proviso to subsection (iii), apply any Collections in excess of such amounts or in excess of the amounts that are required to be set aside pursuant to subsection (i) above to the payment of any "Purchase Price" (including any "Deferred Purchase Price", as such terms are defined in the Originator Purchase Agreement) then due and release the balance, if any, to the Seller. (c) On each Settlement Date, the Collection Agent, on behalf of the Seller, shall deposit funds equal to the lesser of (x) the Collections received or deemed received during the preceding Settlement Period which are held or required to be held for the benefit of the Purchasers or the Banks pursuant to Section 2.06(b) or 2.06(e) and (y) an amount sufficient to make the distributions set forth in clauses (i) and (ii) below in account #4070-3544 at Citibank or to such other account designated by the Agent therefor (provided, however, that so long as the Collection Agent is the Originator and no Event of Termination or Incipient Event of Termination has occurred, the Collection Agent may, on the last day of each month following each Settlement Date, retain from such funds an amount equal to the accrued Collection Agent Fee as of such Settlement Date, instead of including such amount in the deposit made on such Settlement Date.) Upon receipt of such funds, the Agent shall distribute them as follows: (i) if such distribution occurs on a day that is not a Liquidation Day, first to the Purchasers or the Banks that hold the relevant Receivable Interest in payment in full of all accrued Yield and then to the Collection Agent in payment in full of all accrued Collection Agent Fees; and (ii) if such distribution occurs on a Liquidation Day, first to the Purchasers or the Banks that hold the relevant Receivable Interest in payment in full of all accrued Yield, second to such Purchasers or Banks in reduction to zero of all Capital, third to such Purchasers, Banks or the Agent in payment of any other amounts owed by the Seller hereunder, and fourth to the Collection Agent in payment in full of all accrued Collection Agent Fee. After the Capital and Yield and Collection Agent Fee with respect to a Receivable Interest, and any other amounts payable by the Seller to the Purchasers, the Banks or the Agent hereunder, have been paid in full, all additional Collections with respect to such Receivable Interest shall revert to and be paid to the Seller for its own account. (e) For the purposes of this Section 2.06: (i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed merchandise or services, or any cash discount, other promotional adjustment or other retroactive credit made by the Seller or the Originator, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment; (ii) if on any day any of the representations or warranties in Section 4.01(i) is no longer true with respect to any Pool Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full; and (iii) except as provided in paragraph (i) or (ii) of this subsection 2.06(e), or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivables shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables. (f) If and to the extent that the Agent, any Purchaser or any Bank shall be required for any reason to pay over to an Obligor any amount received on its behalf hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Seller and, accordingly, such Purchaser, the Agent or such Bank, as the case may be, shall have a claim against the Seller for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. SECTION 2.07. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Collection Agent hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 A.M. (New York City time) on the day when due in lawful money of the United States of America in immediately available funds at the office of Citibank specified on the signature page hereto. (b) The Seller shall, to the extent permitted by applicable law, pay interest to the Agent on any amount not paid by the Seller when required to be paid by it hereunder, at an interest rate per annum equal to the Alternate Base Rate, payable on demand; provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. Such interest shall be for the account of, and shall be distributed to, the Purchasers or the Banks, as the case may be, ratably in accordance with their respective interests in such overdue amount and shall be paid by the Seller free and clear of and without deduction for any taxes of any kind whatsoever. (c) All computations of interest under subsection (b) above and all computations of fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Whenever any payment or deposit to be made hereunder shall be stated to be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of such payment or deposit. SECTION 2.08. Increased Costs. (a) If CNAI, any Purchaser, any Bank, any entity which enters into a commitment to purchase Receivable Interests or interests therein, or any of their respective Affiliates (each an "Affected Person") determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of the capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of or otherwise to maintain the investment in Pool Receivables or interests therein related to this Agreement or to the funding thereof and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Agent), the Seller shall immediately pay to the Agent for the account of such Affected Person (as a third-party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Purchaser or Bank of agreeing to purchase or purchasing, or maintaining the ownership of Receivable Interests in respect of which Yield is computed by reference to a Eurodollar Rate, then, upon demand by such Purchaser or Bank (with a copy to the Agent), the Seller shall immediately pay to the Agent, for the account of such Purchaser or Bank (as a third-party beneficiary), from time to time as specified by such Purchaser or Bank, additional amounts sufficient to compensate such Purchaser or Bank for such increased costs. A certificate as to such amounts submitted to the Seller and the Agent by such Purchaser or Bank shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.09. Additional Yield on Receivable Interests Bearing a Eurodollar Rate. The Seller shall pay to any Purchaser or Bank, so long as such Purchaser or Bank shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional Yield on the unpaid Capital of each Receivable Interest of such Purchaser or Bank during each Settlement Period in respect of which Yield is computed by reference to the Eurodollar Rate, for such Settlement Period, at a rate per annum equal at all times during such Settlement Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Settlement Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Purchaser or Bank for such Settlement Period, payable on each date on which Yield is payable on such Receivable Interest. Such additional Yield shall be determined by such Purchaser or Bank and notice thereof given to the Seller through the Agent within 30 days after any Yield payment is made with respect to which such additional Yield is requested. A certificate as to such additional Yield submitted to the Seller and the Agent by such Purchaser or Bank shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.10. Security Interest. As collateral security for the performance by the Seller of all the terms, covenants and agreements on the part of the Seller (whether as Seller or otherwise) to be performed under this Agreement or any document delivered in connection with this Agreement in accordance with the terms thereof, including the punctual payment when due of all obligations of the Seller hereunder or thereunder, whether for indemnification payments, fees, expenses or otherwise, the Seller hereby assigns to the Agent for its benefit and the ratable benefit of the Purchasers and the Banks, and hereby grants to the Agent for its benefit and the ratable benefit of the Purchasers and the Banks, a security interest in, all of the Seller's right, title and interest in and to (a) the Originator Purchase Agreement, including, without limitation, (i) all rights of the Seller to receive moneys due or to become due under or pursuant to the Originator Purchase Agreement, (ii) all security interests and property subject thereto from time to time purporting to secure payment of monies due or to become due under or pursuant to the Originator Purchase Agreement, (iii) all rights of the Seller to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Originator Purchase Agreement, (iv) claims of the Seller for damages arising out of or for breach of or default under the Originator Purchase Agreement and (v) the right of the Seller to compel performance and otherwise exercise all remedies thereunder, (b) all Receivables, the Related Security with respect thereto and the Collections and all other assets, including, without limitation, accounts, instruments and general intangibles (as those terms are defined in the UCC) owned by the Seller and not otherwise purchased or scheduled to be purchased under this Agreement and (c) to the extent not included in the foregoing, all proceeds of any and all of the foregoing. ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. Conditions Precedent to Initial Purchase. The initial Purchase under the Original Agreement was subject to the conditions precedent that the Agent shall have received on or before the date of such Purchase the following, each in form and substance satisfactory to the Agent: (a) A copy of the resolutions of the Board of Directors of each of the Seller and the Originator authorizing the Original Agreement and the Originator Purchase Agreement and the other documents to be delivered by it thereunder and the transactions contemplated thereby, certified by its Secretary or Assistant Secretary. (b) A certificate of the Secretary or Assistant Secretary of each of the Seller and the Originator certifying the names and true signatures of the officers authorized on its behalf to sign the Original Agreement and the Originator Purchase Agreement and the other documents to be delivered by it thereunder (on which certificate the Agent, the Purchasers and the Banks may conclusively rely unless and until such time as the Agent shall receive from the Seller or the Originator a replacement certificate meeting the requirements of this subsection (b)). (c) Acknowledgment copies or time stamped receipt copies of proper Financing Statements (Form UCC-1), duly filed on or before the date of such initial Purchase under the UCC of all appropriate jurisdictions or any comparable law that the Agent may deem necessary or desirable in order to perfect the ownership and security interests in all Receivables and Related Security contemplated by the Original Agreement and the Originator Purchase Agreement. (d) Acknowledgment copies or time stamped receipt copies of proper Financing Statements (Form UCC-3), if any, necessary to release all security interests and other rights of any person in (i) the Receivables and Related Security previously granted by the Seller or the Originator and (ii) the collateral security referred to in Section 2.10 previously granted by the Seller. (e) Certified copies of requests for information or copies (Form UCC- 11) (or a similar search report certified by a party acceptable to the Agent), dated a date reasonably near to the date of the initial Purchase, listing all effective financing statements which name the Seller or the Originator (under its present name and any previous name) as debtor and which are filed in the jurisdictions in which filings were made pursuant to subsection (c) above, together with copies of such financing statements (none of which, other than the financing statements filed pursuant to subsection (c), shall cover any Receivables, Related Security or Contracts or the collateral security referred to in Section 2.10). (f) The Fee Agreement referred to in Section 2.05. (g) A favorable opinion or opinions of counsel for the Seller and the Originator, in substantially the form of Exhibit E and as to such other matters as the Agent may reasonably request. (h) A favorable opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel for the Agent, as the Agent may reasonably request. (i) A letter agreement with Fleet National Bank acknowledging the Agent's dominion and control over the Collection Account, duly executed by Fleet National Bank, the Originator and the Seller. (j) A letter agreement acknowledging the Agent's dominion and control over the Supplemental Collection Account, duly executed by the Originator and the Seller. (k) An executed copy of the Originator Purchase Agreement. (l) A copy of the by-laws of the Seller, certified by the Secretary or Assistant Secretary of the Seller. (m) A copy of the certificate or articles of incorporation of the Seller, certified as of a recent date by the Secretary of State or other appropriate official of the state of its organization, and a certificate as to the good standing of the Seller from such Secretary of State or other official, dated as of a recent date. SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase (including the initial Purchase) and each reinvestment hereunder shall be subject to the further conditions precedent that: (a) the Collection Agent shall have prepared and forwarded to the Agent, for each Purchaser and each Bank, on or prior to the 18th day of each month, a Seller Report related to each Receivable Interest owned by such Purchaser or Bank as of the close of business of the Seller on the last day of the preceding Settlement Period and containing such additional information as may be reasonably requested by the Agent; (b) on the date of such Purchase or reinvestment the following statements shall be true, except that the statement in clause (iv) below is required to be true only if such Purchase or reinvestment is by a Purchaser (and the Seller by accepting a payment of Capital shall be deemed to have certified that): (i) the representations and warranties contained in Section 4.01 of this Agreement are correct on and as of such date as though made on and as of such date, (ii) no event has occurred and is continuing, or would result from such Purchase, which constitutes an Event of Termination or Incipient Event of Termination, (iii) on such date, all of the Originator's long- term public senior debt securities are rated at least BB- by Standard & Poor's or Ba3 by Moody's, (iv) the Agent shall not have given the Seller at least one Business Day's notice that the Purchasers have terminated new Purchases of Receivable Interests or reinvestments therein, and (v) the Originator shall have sold or contributed to the Seller, pursuant to the Originator Purchase Agreement, all Pool Receivables then outstanding; and (c) the Agent shall have received such other approvals, opinions or documents as the Agent may reasonably request. SECTION 3.03. Conditions Precedent to the Restatement. The restatement of the Original Agreement is subject to the condition precedent that the Agent shall have received on or before the date of the effective date of such restatement the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Agent: (a) A copy of the resolutions adopted by the Board of Directors of the Seller approving this Agreement and the other documents to be delivered by it hereunder and the transactions contemplated hereby, certified by its Secretary or Assistant Secretary; (b) A certificate of the Secretary or Assistant Secretary of the Seller certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other documents to be delivered by it hereunder (on which certificate the Agent and each Purchaser and Bank may conclusively rely until such time as the Agent shall receive from the Seller a revised certificate meeting the requirements of this subsection (b)); (c) Acknowledgment copies of proper Financing Statements (Form UCC-3) amending the existing Financing Statements filed in 1997 pursuant to subsection (c) of Section 3.01 of the Original Agreement to reflect the exclusion of RRB Charge, in all jurisdictions where the original forms UCC-1 were filed. (d) Copies of the Basic Documents (as defined in the Note Indenture), certified as true by an appropriate officer of the Seller or other appropriate Person. (e) The Intercreditor Agreement. (f) An amendment to the Originator Purchase Agreement. (g) An agreement among Fleet National Bank, the Agent, the Originator and the Seller which, among other things, terminates the Agent's dominion and control over the Supplemental Collection Account. (h) Payment of an amount to the Agent sufficient to reduce Capital to no more than $100,000,000. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Seller. The Seller represents and warrants as follows: (a) The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Connecticut. (b) The execution, delivery and performance by the Seller of the Transaction Documents and the other instruments and documents to be delivered by it hereunder, and the transactions contemplated hereby and thereby, including the Seller's use of the proceeds of Purchases and reinvestments, are within the Seller's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the Seller's charter and by-laws, (ii) any law, rule or regulation applicable to the Seller, (iii) any contractual restriction binding on or affecting the Seller or its property or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and (except as contemplated hereby) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties; and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. Each of the Transaction Documents to which the Seller is a party has been duly executed and delivered by the Seller. (c) No authorization, approval, declaration, order or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Seller of the Transaction Documents to which the Seller is a party or any other document or instrument to be delivered hereunder except for such as have been accomplished and except for the filing of the UCC Financing Statements referred to in Article III, all of which, at the time required in Article III, shall have been duly made and shall be in full force and effect. (d) Each of the Transaction Documents to which the Seller is a party constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms. (e) This Agreement evidences the transfer to the Agent, for the benefit of the Purchasers and the Banks, as the case may be, of legal and equitable title to, and ownership of, an undivided percentage ownership interest in Receivables to the extent of the applicable Receivable Interest Percentage. (f) The consolidated balance sheet of the Originator as at December 31, 1996, and the related statements of income and retained earnings of the Originator for the year then ended (the "Financial Statements"), copies of which have been furnished to the Agent, fairly present the financial condition of the Originator and its Subsidiaries as of such date and the results of the operations of the Originator and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since December 31, 1996 there has not occurred any event which may materially adversely affect the collectibility of the Pool Receivables or the ability of the Originator to collect Pool Receivables or otherwise perform its obligations under this Agreement. The opening pro forma balance sheet of the Seller as at September 30, 1997, giving effect to the initial Purchase to be made under this Agreement, a copy of which has been furnished to the Agent, fairly presents the financial condition of the Seller as at such date, in accordance with generally accepted accounting principles, and since September 30, 1997 there has not occurred any event which may materially adversely affect the collectibility of the Pool Receivables or the ability of the Seller to collect Pool Receivables or otherwise perform its obligations under this Agreement. (g) There are no actions, suits or proceedings pending, or to the knowledge of the Seller or the Originator threatened, against or affecting the Originator or any Significant Subsidiary, or the property of the Originator or of any Significant Subsidiary, except as otherwise disclosed in the Financial Statements and the Public Disclosure Documents, in any court, or before any arbitrator of any kind, or before or by any governmental body, which may materially adversely affect the collectibility of the Receivables Pool or the ability of the Seller or the Originator to collect Pool Receivables or otherwise perform their respective obligations under the Transaction Documents. Neither the Originator nor any Significant Subsidiary is in default with respect to any order of any court, arbitrator or governmental body except for defaults, if any, which are not material to the business or operations of the Originator or any Significant Subsidiary. (h) No proceeds of any Purchase or reinvestment will be used by the Seller to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (i) Each Pool Receivable (i) at the time that the Purchasers or the Banks initially purchase an undivided percentage ownership interest in such Pool Receivable from the Seller, is owned by the Seller free and clear of any Adverse Claim and (ii) together with the Contract related thereto, at all times after such time is free and clear of any Adverse Claim except as otherwise specifically provided hereunder. Upon each Purchase of a Receivable Interest and each reinvestment, the Agent, for the benefit of the Purchasers or the Banks, as the case may be, will acquire a valid and perfected first priority undivided percentage ownership interest (to the extent of such Receivable Interest) in each Pool Receivable then existing or thereafter arising and in the Related Security (to the extent able to be perfected by filing), related Contract and (subject to Section 9-306 of the UCC) Collections with respect thereto free and clear of any Adverse Claim except as provided hereunder and except, in the case of Related Security and Contracts (but not the Receivables), the proportionate interest therein of the SPE and the Note Trustee insofar as any such Related Security and Contracts relate to the RRB Charge (the "Pro Rata RRB Interest "); and no effective financing statement or other instrument similar in effect covering any such Receivable or the Related Security, related Contract and Collections with respect thereto is on file in any recording office, or otherwise effective, except such as may be filed in favor of the Agent in accordance with this Agreement and those filed by the Seller pursuant to the Originator Purchase Agreement and except, in the case of Related Security and Contracts, such as may relate to the Pro Rata RRB Interest. (j) No Seller Report (if prepared by the Seller, or any Person with which the Seller has subcontracted pursuant to Section 6.01, or to the extent that information contained therein is supplied by the Seller or such other Person), information, exhibit, financial statement, document, book, record or report furnished or to be furnished by the Seller to the Agent, any Purchaser or any Bank in connection with this Agreement is inaccurate in any material respect or omits to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (k) The chief place of business and chief executive office of the Seller and the offices where the Seller keeps all its books, records and documents evidencing Pool Receivables or the related Contracts are located at the address specified in Section 5.01(f), in jurisdictions where all action required by Section 6.05 has been taken and completed. (l) The Seller has not (i) extended, modified or waived any of the terms of any Contract giving rise to a Pool Receivable or (ii) made any change in its Credit and Collection Policy except, in either case, as permitted by Section 5.03(c). (m) Each Purchase of a Receivable Interest hereunder and each reinvestment will constitute (i) a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended. (n) On any date, the Net Receivables Pool Balance will not be less than 105% of the sum of Capital, Yield Reserve, Collection Agent Fee Reserve and Loss and Dilution Reserve for all Receivable Interests on such date; provided that no breach of the representation contained in this subsection (n) shall be deemed to have occurred if the condition set forth herein shall be cured within three Business Days after the Seller shall become aware of such condition. (o) Neither the Seller nor the Originator is known by or uses any tradename or doing-business-as name in the origination or collection of any of the Receivables. (p) The Seller was incorporated on September 5, 1997, and did not engage in any business activities prior to the date of the Original Agreement. The Seller has no Subsidiaries. (q) (i) The fair value of the property of the Seller is greater than the total amount of liabilities, including contingent liabilities, of the Seller, (ii) the present fair salable value of the assets of the Seller is not less than the amount that will be required to pay all probable liabilities of the Seller on its debts as they become absolute and matured, (iii) the Seller does not intend to, and does not believe that it will, incur debts or liabilities beyond the Seller's abilities to pay such debts and liabilities as they mature and (iv) the Seller is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Seller's property would constitute unreasonably small capital. (r) With respect to each Pool Receivable as to which any Receivable Interest is outstanding, the Seller either (i) received such Pool Receivable as a contribution to the capital of the Seller by the Originator or (ii) purchased such Pool Receivable from the Originator in exchange for payment (made by the Seller to the Originator in accordance with the provisions of the Originator Purchase Agreement) of cash, Deferred Purchase Price, or a combination thereof in an amount which constitutes fair consideration and reasonably equivalent value. Each such sale referred to in clause (ii) of the preceding sentence was not made for or on account of an antecedent debt owed by the Originator to the Seller and no such sale is or may be voidable or subject to avoidance under any section of the Federal Bankruptcy Code. ARTICLE V GENERAL COVENANTS SECTION 5.01. Affirmative Covenants of the Seller and the Originator. Until the latest of the Facility Termination Date, the Commitment Termination Date, the date that the Capital and Yield with respect to all Receivable Interests shall be paid in full or the date all other amounts owed by the Seller hereunder to the Purchasers, the Banks or the Agent are paid in full, the Seller and the Originator will each, unless the Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties and all Pool Receivables, Related Security and related Contracts, except to the extent any such failure to comply is being contested in good faith by appropriate proceedings or any such failure would not have a material adverse effect on the collectibility of the Receivables Pool or the ability of the Seller or the Originator to perform their respective obligations under this Agreement and the related documents. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect the interests of any Purchaser, any Bank or the Agent hereunder or in the Pool Receivables, or the ability of the Seller or the Collection Agent to perform their respective obligations under this Agreement. (c) Audits. At any time and from time to time during regular business hours as requested by the Agent, permit the Agent, or its agents or representatives (including independent public accountants, which may be the Seller's or the Originator's independent public accountants), (i) to conduct periodic audits of the Pool Receivables, the Related Security and the related books and records and collections systems of the Seller or the Originator, as the case may be, (ii) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Seller or the Originator, as the case may be, relating to Pool Receivables and the Related Security, including, without limitation, the related Contracts, and (iii) to visit the offices and properties of the Seller or the Originator, as the case may be, for the purpose of examining such materials described in clause (ii) above, and to discuss matters relating to Pool Receivables and the Related Security or the Seller's or the Originator's performance under the Transaction Documents or under the Contracts with any of the officers or employees of the Seller or the Originator, as the case may be, having knowledge of such matters. In addition, upon the Agent's request at least once per year, the Seller will, at its expense, appoint independent public accountants (which may be the Originator's regular independent public accountants, Arthur Andersen, LLP, or other major nationally recognized independent public accountants), or utilize the Agent's representatives or auditors, to prepare and deliver to the Agent a written report with respect to the Pool Receivables and the Credit and Collection Policy (including, in each case, the systems, procedures and records relating thereto) on a scope and in a form set forth in Exhibit F hereto or in such other form as may be reasonably requested by the Agent. In connection herewith and unless otherwise required by applicable law, the Agent agrees to maintain the confidentiality of all results of such inspections (except that the Agent shall have no obligation or confidentiality in respect of any information which may be generally available to the public or becomes available to the public through no fault of the Agent). (d) Keeping of Records and Books of Account. Maintain and implement, or cause to be maintained and implemented, administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain, or cause to be kept and maintained, all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). (e) Performance and Compliance with Receivables and Contracts. At its expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables. (f) Location of Records. Keep its chief place of business and chief executive office, and the offices where it keeps its records concerning the Pool Receivables and all Contracts related thereto (and all original documents relating thereto), at the address of the Seller or the Originator, as the case may be, set forth under its name on the signature pages to this Agreement or (i) in the case of such records and Contracts, at the Originator's offices in Wethersfield, Connecticut or (ii) upon 30 days' prior written notice to the Agent, at such other locations in a jurisdiction where all action required by Section 6.05 shall have been taken and completed. (g) Credit and Collection Policies. Comply in all material respects with the Credit and Collection Policy in regard to each Pool Receivable and the related Contract. (h) Collections. In the event that both S&P and Moody's shall lower the Originator's long term public unsecured debt securities rating to below BBB, in the case of S&P, and Baa2, in the case of Moody's, take all actions necessary to ensure that Collections with respect to Pool Receivables are deposited in the Collection Account within two Business Days following receipt thereof. (i) [Intentionally Omitted] SECTION 5.02. Reporting Requirements of the Seller. Until the latest of the Facility Termination Date, the Commitment Termination Date, the date that the Capital and Yield with respect to all Receivable Interests shall be paid in full or the date all other amounts owed by the Seller hereunder to the Purchasers, the Banks or the Agent are paid in full, the Seller will, unless the Agent shall otherwise consent in writing, furnish or cause to be furnished to the Agent: (a) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Originator a copy of the Originator's Quarterly Report on Form 10-Q for such quarter; (b) as soon as available and in any event within 105 days after the end of each fiscal year of the Originator a copy of the Originator's Annual Report on Form 10-K, for such fiscal year; (c) upon request by the Agent, copies of all reports which the Originator sends to any holders of its publicly held securities and copies of all reports and registration statements which the Originator files with the Securities and Exchange Commission or any national securities exchange; (d) promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event (as defined in Article IV of ERISA) which the Originator or any Significant Subsidiary files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Originator or any Significant Subsidiary receives from any of the foregoing in each case in respect of the assessment of withdrawal liability or event or condition which could, in the aggregate, result in the imposition of liability on the Originator in excess of $10,000,000; (e) as soon as possible and in any event within five days after an officer of the Seller obtains knowledge of the occurrence of an Event of Termination or an Incipient Event of Termination, the statement of the chief financial officer or chief accounting officer or the Treasurer or an Assistant Treasurer of the Seller setting forth the details of such Event of Termination or Incipient Event of Termination and the action that the Seller proposes to take with respect thereto; (f) upon the request of the Agent, a list of the Receivables in which each Purchaser and each Bank has purchased an undivided percentage ownership interest hereunder; (g) promptly, from time to time, such other information, documents, records or reports respecting the Receivables or Related Security or the conditions or operations, financial or otherwise, of the Originator or any Significant Subsidiary as the Agent may from time to time reasonably request in order to protect any Purchaser's, any Bank's or the Agent's interests under or contemplated by this Agreement; (h) on or prior to the 18th day of each month, such Seller Reports and other reports, information, documents, books or records as the Agent may reasonably request; (i) promptly after the Seller obtains knowledge thereof, notice of any "Event of Termination" or "Facility Termination Date" under the Originator Purchase Agreement; (j) so long as any Capital shall be outstanding, as soon as possible and in any event no later than the day of occurrence thereof, notice that the Originator has stopped selling or contributing to the Seller, pursuant to the Originator Purchase Agreement, all newly arising Pool Receivables; (k) at the time of the delivery of the financial statements provided for in clauses (a) and (b) of this paragraph, a certificate of the chief financial officer or chief accounting officer or the treasurer or an assistant treasurer of the Seller to the effect that, to the best of such officer's knowledge, no Event of Termination has occurred and is continuing or, if any Event of Termination has occurred and is continuing, specifying the nature and extent thereof; (l) promptly after receipt thereof, copies of all notices received by the Seller from the Originator under the Originator Purchase Agreement; (m) promptly, upon the delivery thereof pursuant to the Servicing Agreement, a copy of each notice (i) of a Servicer Default (as that term is defined in the Servicing Agreement), (ii) permitting the resignation of the Seller from its servicing obligations pursuant to Section 6.05 of the Servicing Agreement and (iii) of the Seller's intention to appoint another Person to perform all of its obligations as servicer pursuant to Section 6.09(a) of the Servicing Agreement; (n) promptly, upon the delivery thereof pursuant to the Purchase and Sale Agreement, a copy of each notice sent thereunder which relates to Article 5 of that agreement; (o) promptly, upon the delivery thereof pursuant to the Servicing Agreement, copies of all Reports to be furnished pursuant to the Servicing Agreement; (p) promptly upon receipt thereof, a copy of each amendment to the Financing Order issued pursuant to the Act; and (q) not less than 30 days before it shall occur, in detail reasonably acceptable to the Agent notice of the commencement by a Person other than the Seller of the billing and/or collecting on behalf of the Seller of charges which constitute Receivables. SECTION 5.03. Negative Covenants of the Seller. Until the latest of the Facility Termination Date, the Commitment Termination Date, the date that the Capital and Yield with respect to all Receivable Interests shall be paid in full or the date all other amounts owed by the Seller hereunder to the Purchasers, the Banks or the Agent are paid in full, the Seller will not, without the written consent of the Agent: (a) Sales, Liens, Etc. Except as otherwise provided herein, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, the Seller's undivided interest in any Pool Receivable, Related Security, related Contract or Collections, or upon or with respect to any lock-box account to which any Collections of any Pool Receivable are sent, or assign any right to receive income in respect thereof. (b) Extension or Amendment of Receivables. Except in conformance with the Credit and Collection Policy, extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto if such action might reduce or impair the rights of any Purchaser, any Bank or the Agent with respect to any Pool Receivable or the collectibility or value of any Pool Receivable. (c) Change in Business or Contracts or Credit and Collection Policy. Make any change in the character of its business or its Contracts or Credit and Collection Policy, which change would, in any case, impair the collectibility of any Pool Receivable. (d) No Actions Against Obligors. Commence or settle any legal action to enforce collection of any Pool Receivable except in conformance with the Credit and Collection Policy. (e) Deposits to Designated Accounts. Deposit or otherwise credit, or cause or fail to use commercially reasonable efforts to prevent from being so deposited or credited, to any Designated Account cash or cash proceeds other than Collections of Pool Receivables. (f) Servicing Agreement and Purchase and Sale Agreement. Amend any provision of the Servicing Agreement or the Purchase and Sale Agreement in a manner that will have a material adverse effect on the collectibility of the Receivables or the ability of the Seller to perform hereunder. SECTION 5.04. Special Covenants Regarding Corporate Separateness, Etc. The Seller and the Originator each acknowledges that the Agent, each Purchaser and each Bank is entering into the transactions contemplated hereby in reliance on the separate legal identity of the Seller. In accordance with such reliance, the Seller hereby agrees that until the latest of the Facility Termination Date, the Commitment Termination Date, the date that the Capital and Yield with respect to all Receivable Interests shall be paid in full or the date all other amounts owed by the Seller hereunder to the Purchasers, the Banks or the Agent are paid in full, the Seller shall: (a) Corporate Separateness. (i) At all times maintain at least one independent director who (x) is not currently and has not been during the five years preceding the date of this Agreement an officer, director or employee of an Affiliate of the Seller or any Other Corporation, (y) is not a current or former officer or employee of the Seller and (z) is not a stockholder of any Other Corporation or any of their respective Affiliates. (ii) Not direct or participate in the management of any of the Other Corporations' operations. (iii) Have stationery and other business forms and a telephone number separate from that of the Other Corporations. (iv) At all times be adequately capitalized in light of its contemplated business. (v) At all times provide for its own operating expenses and liabilities from its own funds. (vi) (A) Except as contemplated hereby, maintain its assets and transactions separately from those of the Other Corporations and reflect such assets and transactions in financial statements separate and distinct from those of the Other Corporations and evidence such assets and transactions by appropriate entries in books and records separate and distinct from those of the Other Corporations; (B) hold itself out to the public under the Seller's own name as a legal entity separate and distinct from the Other Corporations; and (C) not hold itself out as having agreed to pay, or as being liable, primarily or secondarily, for, any obligations of the Other Corporations. (vii) Not maintain any joint account with any Other Corporation or become liable as a guarantor or otherwise with respect to any debt or contractual obligation of any Other Corporation. (viii) Not make any payment or distribution of assets with respect to any obligation of any Other Corporation or grant an Adverse Claim on any of its assets to secure any obligation of any Other Corporation. (ix) Not make loans, advances or otherwise extend credit to any of the Other Corporations except as contemplated hereby and by the Originator Purchase Agreement. (x) Hold regular duly noticed meetings of its Board of Directors and make and retain minutes of such meetings. (xi) Have bills of sale (or similar instruments of assignment) (except with respect to purchases of Receivables) and, if appropriate, UCC-1 financing statements, with respect to all assets purchased from any of the Other Corporations. (xii) Not engage in any transaction with any of the Other Corporations, except as permitted by this Agreement and as contemplated by the Originator Purchase Agreement. (xiii) Comply with (and cause to be true and correct) each of the facts and assumptions contained in Part A on pages 3-6 of the true sale and non-consolidation opinion of Day, Berry & Howard delivered pursuant to Section 3.01(g) and designated as Exhibit E to the Original Agreement. (b) Originator Purchase Agreement. Not amend, waive or modify any provision of the Originator Purchase Agreement or waive the occurrence of any "Event of Termination" under the Originator Purchase Agreement, without in each case the prior written consent of the Agent. The Seller will perform all of its obligations under the Originator Purchase Agreement in all material respects and will enforce the Originator Purchase Agreement in accordance with its terms in all material respects. (c) Nature of Business. Not engage in any business other than the purchase of Receivables, Related Security and Collections from the Originator and the transactions contemplated by this Agreement or create or form any Subsidiary. (d) Mergers, Etc. Not merge with or into or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, or enter into any joint venture or partnership agreement with, any Person, other than as contemplated by this Agreement and the Originator Purchase Agreement. (e) Distributions, Etc. Not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of capital stock of the Seller, or return any capital to its shareholders as such, or purchase, retire, defease, redeem or otherwise acquire for value or make any payment in respect of any shares of any class of capital stock of the Seller or any warrants, rights or options to acquire any such shares, now or hereafter outstanding; provided, however, that the Seller may declare and pay cash dividends on its capital stock to its shareholders so long as (i) no Event of Termination shall then exist or would occur as a result thereof, (ii) such dividends are in compliance with all applicable law including the law of the state of Connecticut, and (iii) such dividends have been approved by all necessary and appropriate corporate action of the Seller. (f) Debt. Not incur any debt, other than any debt incurred pursuant to this Agreement and the Originator Purchase Agreement, including the Deferred Purchase Price. (g) Certificate of Incorporation. Not amend or delete Articles Third, Fourth, Sixth or Seventh of its certificate of incorporation. (h) Tangible Net Worth. Maintain Tangible Net Worth at all times equal to at least 3% of the Outstanding Balance of the Receivables at such time. ARTICLE VI ADMINISTRATION AND COLLECTION SECTION 6.01. Designation of Collection Agent. The servicing, administration and collection of the Pool Receivables shall be conducted by such Person (the "Collection Agent") so designated from time to time in accordance with this Section 6.01. Until the Agent gives notice to the Seller of a designation of a new Collection Agent, the Originator is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. The Agent, at any time after the occurrence of an Event of Termination or Incipient Event of Termination, upon notice to the Seller, may designate as Collection Agent any Person (including itself) to succeed the Originator or any successor Collection Agent, on the condition in each case that any such Person so designated agrees in writing (a) to perform the duties and obligations of the Collection Agent pursuant to the terms hereof and (b) to adhere to the provisions of Section 11.07, which agreement shall survive the termination of this Agreement or such writing. For purposes of satisfying the condition contained in the preceding sentence, the Agent hereby agrees that if and when it shall designate itself as the Collection Agent it shall perform the duties and obligations of the Collection Agent pursuant to the terms hereof. The Collection Agent may subcontract with Northeast Utilities Service Company and may, upon 45 days' notice to the Seller, with the prior consent of the Agent, subcontract with any other Person for the administration and collection of the Pool Receivables, provided that the Collection Agent shall remain liable for the performance of the duties and obligations of the Collection Agent pursuant to the terms hereof. In performing its duties as Collection Agent, the Collection Agent shall exercise the same care and apply the same policies as it would exercise and apply if it owned such Receivables and shall act in the best interests of the Seller, the Purchasers and the Banks. SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall (unless the Agent directs otherwise) take or cause to be taken only such actions as shall be necessary or customary to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and solely in accordance with the Credit and Collection Policy. The Seller and the Agent hereby appoint the Collection Agent, from time to time designated pursuant to Section 6.01, as agent for themselves and for the Purchasers and the Banks to enforce their respective rights and interests in and under the Pool Receivables, the Related Security and the related Contracts and to monitor the Seller's compliance with the terms and conditions set forth in this Agreement. (b) The Collection Agent shall not extend, amend or otherwise modify the terms of any Pool Receivable or amend, modify or waive any term or condition of any Contract related thereto, or commence or settle any legal action to enforce collection of any Pool Receivable, except in conformance with the Credit and Collection Policy. (c) Upon the Agent's request following the occurrence of any Event of Termination or Incipient Event of Termination, the Seller shall deliver to the Collection Agent, and the Collection Agent shall hold in trust, keep confidential and legend appropriately for the Seller and the Agent, acting on behalf of each Purchaser and each Bank, in accordance with their respective interests, copies of all computer tapes or disks which evidence or relate to Pool Receivables and copies of all documents, instruments and other records which evidence or relate to Pool Receivables. (d) The Collection Agent shall as soon as practicable upon demand deliver to the Seller copies of all documents, instruments and other records (including, without limitation, computer tapes or disks) in its possession which evidence or relate to Receivables of the Seller other than Pool Receivables, and copies of documents, instruments and other records in its possession which evidence or relate to Pool Receivables. (e) The Collection Agent shall, at any time and from time to time at the written request of the Agent, furnish to the Agent (within five Business Days after any such request) a calculation of the amounts set aside for the Purchasers and the Banks pursuant to Section 2.06(b). (f) The Collection Agent shall, to the extent permitted by applicable law, pay interest to the Agent on any amount not paid by the Collection Agent when required to be paid by it hereunder, at an interest rate per annum equal to the Alternate Base Rate, payable on demand; provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. Such interest shall be for the account of, and shall be distributed to, the Purchasers and the Banks, as the case may be, entitled thereto ratably in accordance with their respective interests in such overdue amount and shall be paid by the Collection Agent free and clear of and without deduction for any taxes of any kind whatsoever. (g) The Collection Agent's authorization under this Agreement shall terminate, after the Facility Termination Date and Commitment Termination Date, upon receipt by each Purchaser and each Bank which has purchased a Receivable Interest of the allocable Capital and Yield and upon payment in full of all other amounts payable to the Agent, each Purchaser, each Bank and the Collection Agent under this Agreement. SECTION 6.03. Rights of the Agent. (a) The Agent is hereby authorized, at any time, upon notice to the Seller after the occurrence of an Event of Termination or Incipient Event of Termination, to direct the Obligors of Pool Receivables, or any of them (and the Seller shall at the Agent's request and at the Seller's expense, direct such Obligors), to make payment of all amounts payable under any Pool Receivable directly to the Designated Account. Further, the Agent (upon notice to the Seller and at the Seller's expense) may, at any time after the occurrence of an Event of Termination or Incipient Event of Termination, notify the Obligors of Pool Receivables, or any of them, of the ownership of Receivable Interests by the Purchasers and the Banks. (b) At any time after the occurrence of an Event of Termination or Incipient Event of Termination: (i) The Agent may direct the Obligors of Pool Receivables, or any of them, that payment of all amounts payable under any Pool Receivable be made directly to the Agent or its designee. (ii) The Seller shall, at the Agent's request and at the Seller's expense, give notice of the ownership of Receivable Interests by the Agent, for the benefit of the Purchasers and the Banks to each such Obligor and direct that payments be made directly to the Agent or its designee. (iii) The Seller and the Originator shall, at the Agent's request and at the Seller's expense, (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) which evidence or relate to the Pool Receivables, and the related Contracts and Related Security, or which are otherwise necessary or desirable to collect such Pool Receivables, and shall make the same available to the Agent at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables in a manner acceptable to the Agent and shall, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Agent or its designee. (iv) Each of the Seller, each Purchaser and each Bank hereby authorizes the Agent to take any and all steps in the Seller's name and on behalf of the Seller necessary or desirable, in the determination of the Agent, to collect all amounts due under any and all Pool Receivables, including, without limitation, endorsing the Seller's name on checks and other instruments representing Collections of Pool Receivables and enforcing such Pool Receivables and the related Contracts and taking action or causing action to be taken with respect to any Related Security, including with respect to transferring possession of the same to the Agent or its designee. SECTION 6.04. Responsibilities of the Seller and the Originator. Anything herein to the contrary notwithstanding: (a) The Seller and the Originator shall remain responsible and liable to perform all of their respective duties and obligations under the Contracts related to the Pool Receivables, to the extent set forth therein; the Seller and the Originator shall perform their respective obligations under the Contracts related to the Pool Receivables to the same extent as if Receivable Interests had not been sold; (b) The exercise by the Agent of any of its rights hereunder shall not release the Seller or the Originator from any of their respective duties or obligations with respect to any Pool Receivables or under the Contacts related to the Pool Receivables; (c) Neither the Agent nor any Purchaser or Bank shall have any obligation or liability with respect to any Pool Receivables or related Contracts, nor shall any of them be obligated to perform any of the obligations of the Seller or the Originator thereunder; (d) In the event of any conflict between the provisions of Article VI of this Agreement and Article VI of the Originator Purchase Agreement, the provisions of this Agreement shall control; and (e) The Seller shall promptly notify the Agent of any claim or threatened claim probable, in the opinion of the management of the Seller, to result in any liability referred to in Article X. SECTION 6.05. Further Action Evidencing Purchases. (a) Each of the Seller and the Originator agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that the Agent may reasonably request in order to perfect, protect or more fully evidence the Receivable Interests purchased by the Purchasers or the Banks hereunder, or to enable any of them or the Agent to exercise or enforce any of their respective rights hereunder. Without limiting the generality of the foregoing, the Originator will upon the request of the Agent: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; (ii) following the occurrence of any Event of Termination, mark conspicuously each invoice evidencing each Pool Receivable and the related Contract with a legend, acceptable to the Agent, evidencing that an undivided percentage ownership interest in such Receivable has been sold in accordance with this Agreement; and (iii) mark its master data processing records evidencing such Pool Receivables and related Contracts with such legend. (b) The Seller hereby authorizes the Agent to file or cause to be filed one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pool Receivables and the Related Security now existing or hereafter arising without the signature of the Seller where permitted by law. (c) If the Seller fails to perform any of its agreements or obligations under this Agreement, the Agent may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Agent incurred in connection therewith shall be payable by the Seller as provided in Section 11.06. SECTION 6.06. Application of Collections. Any payment by an Obligor in respect of any indebtedness owed by it to the Seller shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless otherwise instructed by the Agent, be applied as a Collection of any Pool Receivable or Receivables of such Obligor to the extent of any amounts then due and payable thereunder before being applied to any other indebtedness of such Obligor, except to the extent that such payment is required to be applied on a pro rata basis to the RRB Charge. SECTION 6.07. Indemnities by the Collection Agent. Without limiting any other rights that the Agent, any Purchaser, any Bank or any of their respective Affiliates (each, a "Special Indemnified Party") may have hereunder or under applicable law, and in consideration of its appointment as Collection Agent, the Collection Agent hereby agrees to indemnify each Special Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Special Indemnified Amounts") arising out of or resulting from any of the following (excluding, however, (a) Special Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Special Indemnified Party, (b) recourse for uncollectible Receivables or (c) any income taxes or any other tax or fee measured by income incurred by such Special Indemnified Party arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Contract): (i) any representation or warranty or statement made or deemed made by the Collection Agent under or in connection with this Agreement which shall have been incorrect in any material respect when made; (ii) the failure by the Collection Agent to comply with any applicable law, rule or regulation with respect to any Pool Receivable or Contract; or the failure of any Pool Receivable or Contract to conform to any such applicable law, rule or regulation; (iii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool, the Contracts and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (iv) any failure of the Collection Agent to perform its duties or obligations in accordance with the provisions of this Agreement; (v) the commingling of Collections of Pool Receivables at any time by the Collection Agent with other funds; (vi) any action or omission by the Collection Agent reducing or impairing the rights of the Purchasers or the Banks with respect to any Pool Receivable or the value of any Pool Receivable; (vii) any Collection Agent Fees or other costs and expenses payable to any replacement Collection Agent, to the extent in excess of the Collection Agent Fees payable to the Collection Agent hereunder; or (viii) any claim brought by any Person other than a Special Indemnified Party arising from any activity by the Collection Agent or its Affiliates in servicing, administering or collecting any Receivable. ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. If any of the following events ("Events of Termination") shall occur and be continuing: (a) The Collection Agent (if other than the Agent or its designee) (i) shall fail to perform or observe any term, covenant or agreement hereunder (other than as referred to in clause (ii) of this Section 7.01(a)) and such failure shall remain unremedied for three Business Days or (ii) shall fail to make any payment or deposit to be made by it hereunder when due; or (b) The Seller or the Originator shall fail (i) to transfer to the Agent when requested by the Agent any rights pursuant to this Agreement which it has as Collection Agent, (ii) to perform or observe any term, covenant or agreement contained in Section 5.03(e) or Section 6.03(a), (iii) to make any payment required under Section 10.01 or (iv) to turn over to the Collection Agent the amounts referred to in Sections 2.06(e)(i) and (ii); or (c) Any representation or warranty made or deemed made by the Seller or the Collection Agent (or any of their respective officers) under or in connection with this Agreement, any other Transaction Document, any Seller Report or any other information or report delivered by the Seller or the Collection Agent pursuant hereto or any Transaction Document shall prove to have been incorrect in any material respect when made or deemed made or delivered; or (d) The Seller or the Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Seller or the Originator by the Agent; or (e) The Seller or the Originator shall fail to pay the principal of or interest on any obligation of the Seller or the Originator for borrowed money (it being agreed that neither the Notes nor the Certificates are such an obligation) in an outstanding amount of $10,000,000 or more when due, whether by acceleration, by required prepayment or otherwise, for a period longer than any period of grace provided in such obligation, or fail to perform any other term, condition or covenant contained in any such obligation, the effect of which is to cause, or to permit the holder of such obligation or others on its behalf to cause, such obligation then to become due prior to its stated maturity, unless such failure shall have been cured or effectively waived; or (f) Any Purchase of a Receivable Interest pursuant hereto or any reinvestment shall for any reason, except to the extent permitted by the terms hereof, cease to create a valid and perfected first priority undivided percentage ownership interest to the extent of such Receivable Interest in each applicable Pool Receivable and the Related Security and Collections with respect thereto; or this Agreement shall for any reason cease to evidence the transfer to the owner thereof of legal and equitable title to, and ownership of, an undivided percentage ownership interest in Pool Receivables and Related Security to the extent of the applicable Receivable Interest; or the security interest created pursuant to Section 2.10 shall for any reason (but subject to the Pro Rata RRB Interest) cease to be a valid and perfected first priority security interest in the collateral security referred to in that section; or (g) (i) The Originator or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Originator or any of its Significant Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, if instituted against the Originator or any of its Significant Subsidiaries, either such proceeding shall not be stayed or dismissed for 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; or (ii) the Originator or any of its Significant Subsidiaries shall take any corporate action to authorize any of the actions set forth in clause (i) above in this subsection (g); or (h) The Delinquency Ratio shall at any time exceed 7%, the Default Ratio shall at any time exceed 8% or the Loss-To- Liquidation Ratio shall at any time exceed 2%; or (i) The Net Receivables Pool Balance shall at any time be less than 105% of the sum of Capital, Yield Reserve, Collection Agent Fee Reserve and Loss and Dilution Reserve for all Receivable Interests at such time and such condition shall continue for three Business Days after the Seller shall become aware of such condition; or (j) There shall have occurred any event which may materially adversely affect the ability of the Seller or the Originator to perform its obligations under this Agreement or the collectibility of the Pool Receivables; or (k) An "Event of Termination" or "Facility Termination Date" shall occur under the Originator Purchase Agreement, or the Originator Purchase Agreement shall cease to be in full force and effect; or (l) All of the outstanding capital stock of the Seller shall cease to be owned, directly or indirectly, by the Originator; or (m) A "Servicer Default" shall occur under the Servicing Agreement; or (n) The Seller shall be required to pay indemnity payments under the Purchase and Sale Agreement on account of its breach of representations and warranties or the Repurchase Date (as defined in the Purchase and Sale Agreement) shall occur; or (o) The Note Trustee commences action to enforce the security interest under the Note Indenture; or, the Note Trustee or any other Person requests the DPUC to order the sequestration and payment to the holders of the Notes of all revenues arising with respect to the RRB Charge and/or the related competitive transition assessment; or (p) The Act or the Financing Order is amended in a manner which materially affects the ability of the Seller to collect Pool Receivables or the ability of the Seller to perform hereunder. then, and in any such event, the Agent may, by notice to the Seller, take either or both of the following actions: (x) designate the Facility Termination Date or the Commitment Termination Date; and (y) designate a Person to succeed the Originator as the Collection Agent (if the Originator is then serving as the Collection Agent) pursuant to Section 6.01; provided, that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of this Section 7.01, the Facility Termination Date and the Commitment Termination Date shall occur, the Originator (if the Originator is then serving as the Collection Agent) shall cease to be the Collection Agent and the Agent or its designee shall become the Collection Agent. Upon any such declaration or designation by the Agent, or upon such automatic termination, the Agent, each Purchaser and each Bank shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided after default under the UCC of the applicable jurisdiction or jurisdictions and other applicable laws, which rights shall be cumulative. ARTICLE VIII THE AGENT SECTION 8.01. Authorization and Action. Each Purchaser and each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Agent under or in connection with this Agreement (including, without limitation, any action taken or omitted to be taken by it or them on behalf of the Purchasers or the Banks if designated as Collection Agent pursuant to Section 6.01), except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Agent: (i) may consult with legal counsel (including counsel for the Seller or the Originator), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Purchaser or any Bank (whether written or oral) and shall not be responsible to any Purchaser or any Bank for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Seller or the Collection Agent or to inspect the property (including the books and records) of the Seller or the Collection Agent; (iv) shall not be responsible to any Purchaser or any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. CNAI and Affiliates. The obligation of Citibank to Purchase Receivable Interests or make reinvestments under this Agreement may be satisfied by CNAI or any of its Affiliates. With respect to any Receivable Interest or interest therein owned by it, CNAI shall have the same rights and powers under this agreement as any Bank and may exercise the same as though it were not the Agent. CNAI and any of its Affiliates may generally engage in any kind of business with the Seller, the Originator or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of the Seller, the Originator or any Obligor or any of their respective Affiliates, all as if CNAI were not the Agent and without any duty to account therefor to any Purchaser or any Bank. SECTION 8.04. Purchasers' and Banks' Purchase Decisions. Each Purchaser and each Bank acknowledges that it has, independently and without reliance upon the Agent, any of its Affiliates or any other Purchaser or Bank and based on such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and, if it so determines, to purchase Receivable Interests hereunder. Each Purchaser and each Bank also acknowledges that it will, independently and without reliance upon the Agent, any of its Affiliates or any other Purchaser or Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement. ARTICLE IX ASSIGNMENT SECTION 9.01. Assignability. (a) Purchasers. This Agreement and the Purchasers' rights and obligations herein (including ownership of each Receivable Interest) shall be assignable by the Purchasers and their successors and assigns. Each assignor of a Receivable Interest or any interest therein shall notify the Agent and the Seller of any such assignment. Each assignor of a Receivable Interest or any interest therein may, in connection with the assignment or participation, disclose to the assignee or participant any information relating to the Seller, including the Receivables, furnished to such assignor by or on behalf of the Seller or by the Agent; provided that, prior to any such disclosure, the assignee or participant agrees to preserve the confidentiality of any confidential information relating to the Seller received by it from any of the foregoing entities. (b) Banks. Each Bank may assign to any Eligible Assignee or to any other Bank all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and any Receivable Interests or interests therein owned by it). The parties to each such assignment shall execute and deliver an assignment to the Agent. In addition, Citibank or any of its Affiliates may assign any of its rights (including, without limitation, rights to payment of Capital and Yield) under this Agreement to any Federal Reserve Bank without notice to or consent of the Seller or the Agent. (c) Agent. This Agreement and the rights and obligations of the Agent herein shall be assignable by the Agent and its successors and assigns. (d) Seller. The Seller may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Agent. ARTICLE X INDEMNIFICATION SECTION 10.01. Indemnities by the Seller. Without limiting any other rights that the Agent, any Purchaser, any Bank or any of their respective Affiliates (each, an "Indemnified Party") may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (collectively, "Indemnified Amounts"), awarded against or incurred by any of them arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any taxes based on or measured by the income of any Indemnified Party incurred by such Indemnified Party arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Contract. Without limiting or being limited by the foregoing, the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) any Receivable, at the time of the transfer of an undivided percentage ownership interest therein, not being an Eligible Receivable; (ii) reliance on any representation or warranty made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement, any Seller Report, the other Transaction Documents or any other information or report delivered by the Seller pursuant hereto which shall have been false or incorrect in any material respect when made or deemed made; (iii) the failure by the Seller or the Originator to comply with any applicable law, rule or regulation with respect to any Pool Receivable, Related Security or the related Contract, or the nonconformity of any Pool Receivable, Related Security or the related Contract with any such applicable law, rule or regulation; (iv) the failure to vest in the Agent, for the benefit of the Purchasers or the Banks, as the case may be, or to transfer to the Agent, for the benefit of the Purchasers or the Banks, as the case may be, (a) legal and equitable title to, and ownership of, an undivided percentage ownership interest, to the extent of each Receivable Interest owned by it hereunder, in the Receivables in, or purporting to be in, the Receivables Pool for such Receivable Interest, or (b) a perfected security interest as provided in Section 2.10, in each case free and clear of any Adverse Claim; (v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool for any Receivable Interest, any Contract or Related Security whether at the time of any Purchase or reinvestment or at any subsequent time; (vi) any dispute, claim, offset or defense of the Obligor (other than discharge in bankruptcy of the Obligor) to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivables or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Collection Agent); (vii) any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties and obligations under the Contracts; (viii) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with merchandise or services which are the subject of any Contract; (ix) the commingling of Collections of Pool Receivables at any time with any funds (provided that this paragraph (ix) will not cover commingling that occurs after such Collections have been either (1) deposited or otherwise paid over to the Agent for the account of the Purchasers or the Banks in accordance with this Agreement or (2) received by CNAI or any of its Affiliates acting as Collection Agent); (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Purchases or the ownership of Pool Receivables or in respect of any Pool Receivable or any Contract; (xi) any failure of the Seller or the Originator to comply with its respective covenants contained in Section 5.01; or (xii) any claim brought by any Person other than an Indemnified Party arising from any activity by the Seller or any Affiliate of the Seller in servicing, administering or collecting any Receivable. ARTICLE XI MISCELLANEOUS SECTION 11.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Seller or the Originator therefrom shall in any event be effective unless the same shall be in writing and signed by the Agent, as agent for the Purchasers and the Banks (and, in the case of any amendment, also signed by the Seller and the Originator), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by the Collection Agent in addition to the Agent, affect the rights or duties of the Collection Agent under this Agreement. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings, except that certain of the provisions hereof are subject to the terms of the Intercreditor Agreement. SECTION 11.02. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and faxed or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by regular mail), and notices and communications sent by other means shall be effective when received. SECTION 11.03. No Waiver; Remedies. No failure on the part of the Agent, any Purchaser or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 11.04. Binding Effect. (a) This Agreement shall be binding upon and inure to the benefit of the Seller, the Originator, the Agent, the Purchasers, the Banks and their respective successors and assigns. (b) This Agreement shall create and constitute the continuing agreement of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Facility Termination Date; provided, however, that (i) the rights of the Purchasers and the Banks to collect the Capital and Yield in respect of the Receivable Interests owned by them, (ii) the rights and remedies of the Purchasers and the Banks with respect to any breach of any representation and warranty made by the Seller pursuant to Article IV or Section 3.02, (iii) the indemnification provisions of Article X and Section 11.06, (iv) the rights of the Agent and the Collection Agent to be paid the fees, costs and expenses provided for hereunder and (v) the agreement set forth in Section 11.07 shall be continuing and shall survive any termination of this Agreement. SECTION 11.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE PURCHASERS AND THE BANKS IN THE RECEIVABLES, OR REMEDIES HEREUNDER IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 11.06. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Article X hereof, the Seller agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing and the other activities contemplated in Section 5.01(c)) of this Agreement and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out- of- pocket expenses of counsel for the Agent, with respect thereto and with respect to advising the Agent, CNAI, the Conduit, Citibank and their respective Affiliates as to their respective rights and remedies under this Agreement, and all reasonable costs and expenses, if any (including reasonable counsel fees and expenses), of the Agent, CNAI, the Purchasers, the Banks and their respective Affiliates, in connection with the enforcement of this Agreement and the other documents to be delivered hereunder. (b) In addition, the Seller shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, recording or enforcement of this Agreement or the other documents to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 11.07. No Proceedings. Each of the Seller, the Originator, the Agent, the Collection Agent, each Purchaser, each Bank, each assignee of a Receivable Interest or any interest therein and each entity which enters into a commitment to purchase Receivable Interests or interests therein hereby agrees that it will not institute against the Conduit any proceeding of the type referred to in Section 7.01(g) so long as any commercial paper or other senior indebtedness issued by the Conduit shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such commercial paper or other senior indebtedness shall have been outstanding. SECTION 11.08. Confidentiality. (a) By the Seller and the Originator. Unless otherwise required by applicable law (including, without limitation, the order of any governmental authority having jurisdiction and authority to issue such order or upon the request or demand of, or in connection with any investigation, proceeding or audit by, any governmental authority, if such request or demand shall have the force of law or be made in connection with the exercise of such authority's regulatory functions), the Seller and the Originator agree to maintain the confidentiality of this Agreement (and all drafts thereof) in communications with third parties and otherwise; provided, however, that the Agreement may be disclosed to third parties to the extent such disclosure is (i) required in connection with a sale of securities of the Originator, or in connection with the Certificates (ii) made solely to persons who are legal counsel for the purchaser or underwriter of such securities, (iii) limited in scope to the provisions of Articles V, VII, X and, to the extent defined terms are used in Articles V, VII and X, such terms defined in Article I of this Agreement, (iv) made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Agent, (v) to the Seller's or the Originator's legal counsel and accountants if they agree to hold it confidential or (vi) with respect to information generally available to the public or which becomes available to the public through no fault of the Seller or the Originator. (b) By the Agent. Unless otherwise required by applicable law (including, without limitation, the order of any governmental authority having jurisdiction and authority to issue such order or upon the request or demand of, or in connection with any investigation, proceeding or audit by, any governmental authority or rating agency, if such request or demand shall have the force of law or be made in connection with the exercise of such authority's regulatory functions or such agency's normal functions), the Agent agrees to maintain the confidentiality of any information provided to the Agent by the Seller or the Originator; provided, however, that such information may be disclosed to third parties to the extent such disclosure is (i) made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Seller and the Originator or (ii) to the Agent's legal counsel and accountants if they agree to hold it confidential or (iii) with respect to information generally available to the public or which becomes available to the public through no fault of the Agent. SECTION 11.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: CL&P RECEIVABLES CORPORATION By:_________________________________ Name: Randy A. Shoop Title: Treasurer 107 Selden Street Berlin, Connecticut 06037 Attention: Assistant Treasurer Facsimile No.: (860) 665-5457 ORIGINATOR AND COLLECTION AGENT: THE CONNECTICUT LIGHT AND POWER COMPANY By_____________________________ Name: Randy A. Shoop Title: Treasurer 107 Selden Street Berlin, Connecticut 06037 Attention: Assistant Treasurer Facsimile No.: 860-665-5457 PURCHASER: CORPORATE ASSET FUNDING COMPANY, INC. By: Citicorp North America, Inc. as Attorney-in-Fact By_____________________________ Name: Title: Vice President 450 Mamaroneck Avenue Harrison, NY 10528 Attention: Corporate Asset Funding Facsimile No.: 914-899-7890 BANK: CITIBANK, N.A. By:_______________________________ Name: Title: Vice President Percentage: 100% 450 Mamaroneck Avenue Harrison, N.Y. 10528 Facsimile No.: 914-899-7890 AGENT: CITICORP NORTH AMERICA, INC., as Agent By__________________________________ Name: Title: Vice President 450 Mamaroneck Avenue Harrison, N.Y. 10528 Attention: Corporate Asset Funding Facsimile No.: 914-899-7890 EXHIBIT A SPECIAL CONCENTRATION LIMITS Date: ____________, 20__ Citicorp North America, Inc., as Agent 450 Mamaroneck Avenue Harrison, New York 10528 Attention: Corporate Asset Funding Department Reference is made to the Amended and Restated Receivables Purchase and Sale Agreement, dated as of March 30, 2001 (the terms defined therein being used herein as therein defined) among CL&P Receivables Corporation, The Connecticut Light and Power Company, Corporate Asset Funding Company, Inc., Citibank, N.A. and Citicorp North America, Inc., as Agent. The Seller hereby designates for the Designated Obligor[s] named below the Special Concentration Limit[s] set forth below opposite [its] [their respective] name[s]: Designated Obligor Special Concentration Limit __________________ ___________________________ __________________ ___________________________ [etc.] CL&P RECEIVABLES CORPORATION By____________________________ Name: Title: The undersigned hereby approves the above Special Concentration Limit[s], as of the date hereof. CITICORP NORTH AMERICA, INC. as Agent By____________________________ Name: Title: EXHIBIT B FORM OF SELLER REPORT EXHIBIT C DESCRIPTION OF TARIFFS 1. The retail rates charged by the Originator to Obligors, as approved from time to time by the Connecticut Department of Public Utility Control. 2. The Connecticut Light and Power Company Terms and Conditions for Delivery Service, effective January 12, 2000, applicable to its retail rate accounts as approved by the Connecticut Department of Public Utility Control. EXHIBIT D CANCELLATION OF DESIGNATION OF OBLIGORS AND/OR SPECIAL CONCENTRATION LIMITS Date: _____________, 20__ [Citicorp North America, Inc., as Agent 450 Mamaroneck Avenue Harrison, New York 10528 Attention: Corporate Asset Funding] [CL&P Receivables Corporation 107 Selden Street Berlin, Connecticut] Reference is made to the Amended and Restated Receivables Purchase and Sale Agreement, dated as of March 30, 2001 (the "Receivables Agreement"; the terms defined therein being used herein as therein defined) among CL&P Receivables Corporation, The Connecticut Light and Power Company, Corporate Asset Funding Company, Inc., Citibank, N.A. and Citicorp North America, Inc., as Agent. Pursuant to Section 2.01 of the Receivables Agreement, the undersigned hereby cancels, effective as of the date occurring three days after the date hereof, the designation of [each of] the following Obligor[s] as a Designated Obligor: 1. _________________________________________________ 2. _________________________________________________ 3. _________________________________________________ (etc.) The undersigned hereby cancels, effective as of the date occurring three days after the date hereof, the Special Concentration Limit of each of the following Obligor[s]: 1. _______________________ 2. _______________________ 3. _______________________ (etc.) and thus as of the date occurring three days after the date hereof the Normal Concentration Limit shall apply to the above Obligor[s]. [CITICORP NORTH AMERICA, INC., as Agent] [CL&P RECEIVABLES CORPORATION] By_______________________________ Name: Title: EXHIBIT E FORM OF OPINION OF COUNSEL FOR THE SELLER See tabs 12 and 13. EXHIBIT F AUDIT SCOPE I. Review of 2-3 monthly Seller Reports A. Agree numerical amounts to source documents B. Recalculate percentages and ratios C. Review customer concentrations (cross-agings) D. Review write-off activity E. Review AR eligibility F. Review the aging of outstanding invoices II. Perform a verification of receivable activity for sample Seller Report A. Monthly activity 1. Sales 2. Collections 3. Write-offs 4. Debit and Credit memos B. Statistical analysis 1. Turnover 2. Dilution 3. Loss-to-liquidation III. If available, supply copy of most recent review of accounting controls EX-10.41.2 5 morrempamend10412.txt MORRIS AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated as of June 28, 2001, is to the Employment Agreement, dated as of August 20, 1997, by and between Northeast Utilities (the "Company") and Michael G. Morris ("Executive"), as amended. A. The following sentence is added at the end of Section 1.5 of the Employment Agreement: Notwithstanding anything to the contrary in this agreement, if at the end of the Employment Term Executive is at least age 60, in no event will the Special Retirement Benefit be of less value on an actuarial basis (determined by using the definition of "Actuarially Equivalent" in the Northeast Utilities Service Company Retirement Plan) than the benefit that would have been paid under the Supplemental Plan (including survivor benefits), assuming that in lieu of the Special Retirement Benefit, Executive had been eligible for a Make-Whole Benefit and a Target Benefit under the Supplemental Plan based only on service rendered for the Company and CMS. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. NORTHEAST UTILITIES EXECUTIVE By: /s/ Gregory B. Butler /s/Michael G. Morris Its Vice President, Secretary Michael G. Morris and General Counsel EX-10.41.3 6 morrisamend10413.txt AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated as of September 11, 2001, is to the Employment Agreement, dated as of August 20, 1997, by and between Northeast Utilities (the "Company") and Michael G. Morris ("Executive"), as amended. A. The following sentence is added at the end of Section 1.4 of the Agreement: "Executive's annual Base Salary shall not be reduced below $900,000 after September 1, 2001 without Executive's written consent." B. The words "due hereunder" in Section 6.1(f)(ii) are amended to read "as in effect immediately prior to the Change of Control". IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. NORTHEAST UTILITIES By: /s/ Gregory B. Butler Its Vice President, Secretary and General Counsel EXECUTIVE /s/ Michael G. Morris Michael G. Morris EX-10.44.5 7 forssuppbenagr08080110445.txt SUPPLEMENTAL AND ENHANCED RETIREMENT BENEFITS August 8, 2001 TO: John H. Forsgren FROM: Michael G. Morris /s/ Mike SUBJECT: Supplemental and Enhanced Retirement Benefit This memorandum is intended to confer upon you supplemental and enhanced retirement benefits in recognition of your past and expected future contributions to the success of the Northeast Utilities (NU) system. It supersedes the terms set forth in a memorandum dated April 14, 1999, to which you agreed on May 10, 1999, and supplements the terms of your Employment Agreement, dated as of February 25, 1997, as amended. In addition to the retirement benefits you would otherwise be entitled upon retirement from the employ of Northeast Utilities Service Company (NUSCO) or a successor affiliate within the NU system (the Employer), under the NUSCO retirement plan and under the existing SERP, you will be entitled to two additional benefits that will be payable by the Employer: (1) For the first ten years of your employment by the Employer, you will accrue retirement benefits under the NUSCO retirement plan and the SERP at the rate of two years of Credited Service (as defined by the NUSCO retirement plan) for each one year of actual service, and the Employer will pay you after your 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 you will be entitled under the NUSCO retirement plan and the SERP. This payment will be made monthly until your death, without limit of time. This benefit will not survive your death or be available in part to a surviving spouse, except that you may elect to receive it in one of the forms of payment available from the NUSCO retirement plan that reduces your monthly payment in order to provide for survivor benefits. (2) In addition to your benefits under the NUSCO retirement plan and the SERP, and the supplemental benefit attributable to enhanced Credited Service described in paragraph (1) above, the Employer will pay you after your retirement from the Employer an additional supplemental, non-qualified benefit, on a monthly basis for the fifteen years after your retirement begins, an amount equal to 25 percent of FAC, as defined below, reduced by four percentage points for each year that your age is less than 65 years at the time of your retirement from the Employer. As used in this paragraph, "FAC" means your monthly Final Average Compensation, as defined in the SERP, but limited to 170 percent of the monthly average of your high consecutive 36 months of base compensation. This benefit will not survive your death or be available in part to a surviving spouse. In addition, if you remain employed with the Employer until you attain age 58, (age 55 in the event that you execute the Release required by Section 5.4(b) of your Employment Agreement following a Termination upon a Change of Control as defined in Section 6.1(f) thereof), (a) you will be vested in and eligible to receive upon your voluntary termination thereafter, notwithstanding Section 5.5 of your Employment Agreement, a Target Benefit in accordance with the terms of the Northeast Utilities Supplemental Executive Retirement Plan (the Supplemental Plan) notwithstanding that you 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) of your Employment Agreement, and (c) assuming that Section 6.4(a) of your Employment Agreement does not apply to such termination, three (3) years will be added to your age and service for purposes of such Target Benefit. Please sign all three copies of this memorandum to acknowledge these supplemental and enhanced retirement benefits. Keep one for yourself and return two to me. Acknowledged: /s/ John H. Forsgren Date: 8-08-01 John H. Forsgren EX-10.44.6 8 forsgrensuppagt10446.txt SUPPLEMENTAL COMPENSATION AGREEMENT Northeast Utilities System Memo September 5, 2001 TO: John H. Forsgren FROM: Michael G. Morris SUBJECT: Supplemental Compensation Arrangement This memorandum agreement documents a compensation arrangement between Northeast Utilities Service Company (the Company) and John H. Forsgren, an officer of the Company ("Executive"), as approved on June 28, 2001, by the Compensation Committee of the Board of Trustees of Northeast Utilities. It will become effective when signed by both parties below. 1.Amount of Compensation: $520,000, as adjusted to reflect investment performance. No compensation will be paid under this agreement until the Time of Payment indicated in paragraph (4) below. 2.Risk of Forfeiture: One-third of the amount set forth in paragraph (1) above will become nonforfeitable and will vest on each of June 28, 2002, June 28, 2003, and June 28, 2004. Accretions attributable to investment performance of such amount will vest on the same schedule. Notwithstanding the foregoing, all unvested amounts will become nonforfeitable and vest upon the occurrence of a Change of Control or upon involuntary termination without cause, each as defined in the Employment Agreement between the Company and the Executive; otherwise, all unvested amounts will be forfeited upon separation from the service of Northeast Utilities and its subsidiaries. 3.Investment Performance: Prior to payment, the amount set forth in paragraph (1) above will vary according to investment performance until payment as follows: A. It will be increased at an annual rate of 6.9 percent to reflect interest for the period June 28, 2001 through June 30, 2001. B. It will be increased at an annual rate of 6.5 percent to reflect interest for the period from July 1, 2001 through the effective date of this agreement. C. It will vary from the effective date until the date of payment or forfeiture according to the investment allocation chosen by Executive for Executive's account in the Northeast Utilities Deferred Compensation Plan for Executives. 4.Time of Payment (Choose one): X Payment of vested amounts (including amounts resulting from investment performance as described in paragraph (3) above) will be made in cash promptly following each vesting. Payment of vested amounts (including amounts resulting from investment performance as described in paragraph (3) above) will be made in ______ annual cash payments commencing within one month following Executive's separation from the service of Northeast Utilities and/or its subsidiaries. 5.General: The parties' obligations with respect to this compensation will be governed by the terms and conditions of Executive's Employment Agreement with the Company. The Company will administer its obligations with respect to this compensation through the vice president in charge of the Human Resources department. NORTHEAST UTILITIES SERVICE COMPANY By /s/ Michael G. Morris Its Chairman, President & CEO Date: 9/5/01 EXECUTIVE /s/ John H. Forsgren John H. Forsgren Date: 9/6/01 EX-10.44.7 9 grisforsgagmtamend10447.txt AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated as of September 19, 2001, is to the Employment Agreement, dated as of February 25, 1997, by and between Northeast Utilities Service Company (the "Company") and John H. Forsgren ("Executive"), as amended. A. The following sentence is added at the end of Section 1.4 of the Agreement: "Executive's annual Base Salary shall not be reduced below $550,000 after September 1, 2001 without Executive's written consent." B. The words "due hereunder" in Section 6.1(f)(ii) are amended to read "as in effect immediately prior to the Change of Control". IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. NORTHEAST UTILITIES SERVICE COMPANY By:/s/ Gregory B. Butler Its Vice President, General Counsel and Secretary EXECUTIVE _______________________ John H. Forsgren EX-10.46.4 10 grisesuppcom10464.txt GRISE SUPPLEMENTAL COMPENSATION Northeast Utilities System Memo September 17, 2001 TO: Cheryl W. Grise FROM: Michael G. Morris SUBJECT: Supplemental Compensation Arrangement This memorandum agreement documents a compensation arrangement between Northeast Utilities Service Company (the Company) and Cheryl W. Grise, an officer of the Company ("Executive"), as approved on September 11, 2001, by the Compensation Committee of the Board of Trustees of Northeast Utilities. It will become effective when signed by both parties below. 1. Amount of Compensation: $500,000, as adjusted to reflect investment performance. No compensation will be paid under this agreement until the Time of Payment indicated in paragraph (4) below. 2. Risk of Forfeiture: One-third of the amount set forth in paragraph (1) above will become nonforfeitable and will vest on each of June 28, 2002, June 28, 2003, and June 28, 2004. Accretions attributable to investment performance of such amount will vest on the same schedule. Notwithstanding the foregoing, all unvested amounts will become nonforfeitable and vest upon the occurrence of a Change of Control or upon involuntary termination without cause, each as defined in the Employment Agreement between the Company and the Executive; otherwise, all unvested amounts will be forfeited upon separation from the service of Northeast Utilities and its subsidiaries. 3. Investment Performance: Prior to payment, the amount set forth in paragraph (1) above will vary according to investment performance until payment as follows: A. It will be increased at an annual rate of 6.9 percent to reflect interest for the period June 28, 2001 through June 30, 2001. B. It will be increased at an annual rate of 6.5 percent to reflect interest for the period from July 1, 2001 through the effective date of this agreement. C. It will vary from the effective date until the date of payment or forfeiture according to the investment allocation chosen by Executive for Executive's account in the Northeast Utilities Deferred Compensation Plan for Executives. 4. Time of Payment (Choose one): X Payment of vested amounts (including amounts resulting from investment performance as described in paragraph (3) above) will be made in cash promptly following each vesting. Payment of vested amounts (including amounts resulting from investment performance as described in paragraph (3) above) will be made in ______ annual cash payments commencing within one month following Executive's separation from the service of Northeast Utilities and/or its subsidiaries. 5. General: The parties' obligations with respect to this compensation will be governed by the terms and conditions of Executive's Employment Agreement with the Company. The Company will administer its obligations with respect to this compensation through the vice president in charge of the Human Resources department. NORTHEAST UTILITIES SERVICE COMPANY By /s/ Michael G. Morris Its Chairman, President and CEO Date: EXECUTIVE /s/ Cheryl W. Grise Date: 9/24/01 EX-10.46.5 11 griseamenempagr10465.txt AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated as of September 19, 2001, is to the Employment Agreement, dated as of February 25, 1997, by and between Northeast Utilities Service Company (the "Company") and Cheryl W. Grise ("Executive"), as amended. A. The following sentence is added at the end of Section 1.4 of the Agreement: "Executive's annual Base Salary shall not be reduced below $400,000 after September 1, 2001 without Executive's written consent." B. The words "due hereunder" in Section 6.1(f)(ii) are amended to read "as in effect immediately prior to the Change of Control". IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. NORTHEAST UTILITIES SERVICE COMPANY By: /s/ Gregory B. Butler Its Vice President, General Counsel and Secretary EXECUTIVE _______________________ Cheryl W. Grise EX-15 12 exhibit15.txt ARTHUR ANDERSEN Exhibit 15 To Northeast Utilities: We are aware that Northeast Utilities has incorporated by reference in its Registration Statements No. 33-34622, No. 33-40156, No. 33-44814, No. 33-63023, No. 33-55279, No. 33-56537, No. 333-52413, No. 333-52415, and No. 333-85613, its Form 10-Q for the quarter ended September 30, 2001, which includes our report dated November 8, 2001, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. It should be noted that we have not performed any procedures subsequent to November 8, 2001. /s/ Arthur Andersen LLP Arthur Andersen LLP Hartford, Connecticut November 8, 2001 -----END PRIVACY-ENHANCED MESSAGE-----