-----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, TFgD3uFm0BcdiFl5K3tjbIQDobi5g4gZyOd8PLahZPOGjuL9/r5qAcZU0lI2Vqtr vtKH0Q74/08jlQ12NNtxbw== 0000072741-03-000042.txt : 20030326 0000072741-03-000042.hdr.sgml : 20030325 20030326131520 ACCESSION NUMBER: 0000072741-03-000042 CONFORMED SUBMISSION TYPE: U-9C-3 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 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: U-9C-3 SEC ACT: 1935 Act SEC FILE NUMBER: 074-00011 FILM NUMBER: 03617700 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0010 BUSINESS PHONE: 4137855871 MAIL ADDRESS: STREET 1: 107 SELDEN ST CITY: BERLIN STATE: CT ZIP: 06037-1616 U-9C-3 1 december2002u9c3.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 FORM U-9C-3 QUARTERLY REPORT PURSUANT TO RULE 58 For the quarterly period ended December 31, 2002 Northeast Utilities ----------------------------------- (Name of registered holding company) 107 Selden Street, Berlin, CT 06037 ----------------------------------- (Address of principal executive offices) Name and telephone number of officer to whom inquiries concerning this report should be directed: John P. Stack, Vice President - Accounting and Controller Telephone Number: 860-665-2333 GENERAL INSTRUCTIONS A. Use of Form 1. A reporting company, as defined herein, shall file a report on this form within 60 days after the end of each of the first three quarters, and within 90 days after the end of the fourth quarter, of the fiscal year of the registered holding company. The period beginning on the date of effectiveness of rule 58 and ending at the end of the quarter following the quarter in which the rule becomes effective shall constitute the initial period for which any report shall be filed, if applicable. 2. The requirement to provide specific information by means of this form supersedes any requirement by order of the Commission to provide identical information by means of periodic certificates under rule 24; but does not so supersede and replace any requirement by order to provide information by means of an annual report on Form U-13-60. 3. Information with respect to reporting companies that is required by Form U-13-60 shall be provided exclusively on that form. 4. Notwithstanding the specific requirements of this form, this Commission may informally request such further information as, in its opinion, may be necessary or appropriate. B. Statements of Monetary Amounts and Deficits 1. Amounts included in this form and in related financial statements may be expressed in whole dollars, thousands of dollars or hundred thousands of dollars. 2. Deficits and other similar entries shall be indicated by either brackets or parentheses. An explanation should be provided by footnote. C. Formal Requirements This form, including exhibits, shall be filed with Commission electronically pursuant to Regulation S-T (17 CFR 232.10 et seq.). A conformed copy of each such report shall be filed with each state commission having jurisdiction over the retail rates of a public utility company that is an associate company of a reporting company. Each report shall provide the name and telephone number of the person to whom inquiries concerning the report should be directed. D. Definitions As used in this form, the word "reporting company" means an energy-related company or gas-related company, as defined in rule 58(b). All other words and terms have the same meaning as in the Public Utility Holding Company Act of 1935, as amended, and the rules and regulations thereunder. ITEM 1 - ORGANIZATION CHART - ------------------------------------------------------------------------------ Instructions - ------------ 1. Complete Item 1 only for the first three calendar quarters of the fiscal year of the registered holding company. 2. Under the caption "Name of Reporting Company," list each energy-related and gas-related company and each system company that directly or indirectly holds securities thereof. Add the designation "(new)" for each reporting company of which securities were acquired during the period, and the designation "(*)" for each inactive company. 3. Under the caption "Percentage of Voting Securities Held," state the aggregate percentage of the outstanding voting securities of the reporting company held directly or indirectly by the registered holding company at the end of the quarter. 4. Provide a narrative description of each reporting company's activities during the reporting period. - ------------------------------------------------------------------------------- 4th quarter not required. ITEM 2 - ISSUANCES AND RENEWALS OF SECURITIES AND CAPITAL CONTRIBUTIONS - ------------------------------------------------------------------------------ Instruction - ----------- With respect to a transaction with an associate company, report only the type and principal amount of securities involved. - ------------------------------------------------------------------------------
Person Company Type of Principal to Whom Collateral Consideration Company Amount of Issuing Security Amount of Issue or Cost of Security Given With Received for Contributing Capital Security Issued Security Renewal Capital Was Issued Security Each Security Capital Contribution - --------------- -------- ------------ -------- ------- ------------ ---------- ------------- ------------ ------------- Select Energy, Inc. No transactions this quarter. Northeast Generation Services Company No transactions this quarter. Select Energy Contracting, Inc. No transactions this quarter. Reeds Ferry Supply Co., Inc. No transactions this quarter. HEC/Tobyhanna Energy Project, Inc. No transactions this quarter. Yankee Energy Services Company No transactions this quarter. R. M. Services, Inc. No transactions this quarter. ERI/HEC EFA-Med, LLC No transactions this quarter. E.S. Boulos Company No transactions this quarter. NGS Mechanical Company No transactions this quarter. HEC/CJTS Energy Center LLC No transactions this quarter. Select Energy New York, Inc. No transactions this quarter. Woods Electrical Company, Inc. No transactions this quarter. Northeast Utilities No transactions this quarter.
ITEM 3 - ASSOCIATE TRANSACTIONS - ------------------------------------------------------------------------------- Instructions - ------------ 1. This item is used to report the performance during the quarter of contracts among reporting companies and their associate companies, including other reporting companies, for service, sales and construction. A copy of any such contract not filed previously should be provided as an exhibit pursuant to Item 6.B. 2. Parts I and II concern transactions performed by reporting companies on behalf of associate companies, and transactions performed by associate companies on behalf of reporting companies, respectively. - ------------------------------------------------------------------------------- Part I - Transactions performed by reporting companies on behalf of associate companies.
Total Amount Billed* Reporting Associate Company Company Types of Three Months Rendering Receiving Services Ended Services Services Rendered December 31, 2002 - ----------------------- ------------------------ -------------- ------------------- (Thousands of Dollars) Northeast Northeast Generation Generation Electrical and Services Company Company Mechanical services $ 5,750 ================= Northeast Generation Electrical and Services Company E. S. Boulos Mechanical services $ 10 ================= Northeast Generation Northeast Utilities Electrical and Services Company Service Company Mechanical services $ 52 ================= Northeast The Connecticut Generation Light and Power Electrical and Services Company Company Mechanical services $ 127 ================= Northeast Generation Holyoke Water Electrical and Services Company Power Company Mechanical services $ 3,313 ================= Northeast Western Generation Massachusetts Electrical and Services Company Electric Company Mechanical services $ 1 ================= Northeast Generation Select Energy Electrical and Services Company Services, Inc. Mechanical services $ 586 ================= Northeast Public Service Generation Company of Electrical and Services Company New Hampshire Mechanical services $ 1,299 ================= Northeast Generation Yankee Energy Electrical and Services Company Services Company Mechanical services $ 31 ================= Reeds Ferry Select Energy Wholesale Purchasing Supply Co., Inc. Contracting, Inc. Services $ 184 ================= Select Energy Select Energy Wholesale Purchasing Services, Inc. New York, Inc. Services $ 23 ================= Select Energy Northeast Generation Wholesale Purchasing Services, Inc. Services Company Services $ 1 ================= Select Energy Northeast Utilities Wholesale Purchasing Services, Inc. Service Company Services $ 2 ================= The Connecticut Select Energy Light and Power Wholesale Purchasing Services, Inc. Company Services $ 9 ================= Northeast Generation Wholesale Purchasing E. S. Boulos Services Company Services $ 148 =================
*Total Amount Billed is for direct costs only. Part II - Transactions performed by associate companies on behalf of reporting companies.
Total Amount Billed* Associate Reporting Company Company Types of Three Months Rendering Receiving Services Ended Services Services Rendered December 31, 2002 - ----------------------- ------------------------ -------------- ------------------- (Thousands of Dollars) Northeast Generation Northeast Generation Company Services Company Miscellaneous $ 434 ================= Public Service Company of Northeast Generation New Hampshire Services Company Miscellaneous $ 2 ================= Public Service Company of Select Energy, New Hampshire Inc. Miscellaneous $ 5 ================= The Connecticut Light and Power Northeast Generation Company Services Company Miscellaneous $ 25 ================= The Connecticut Light and Power Select Energy, Company Inc. Miscellaneous $ 2 ================= Holyoke Water Northeast Generation Power Company Services Company Miscellaneous $ 348 ================= Western Massachusetts Northeast Generation Electric Company Services Company Miscellaneous $ 22 ================= Western Massachusetts Select Energy, Electric Company Inc. Miscellaneous $ 1 ================= Northeast Utilities Select Energy Service Company New York, Inc. Miscellaneous $ 35 ================= Northeast Utilities Northeast Generation Service Company Services Company Miscellaneous $ 1,378 ================= Northeast Utilities Select Energy, Service Company Inc. Miscellaneous $ 3,555 ================= Northeast Utilities Yankee Energy Service Company Services Company Miscellaneous $ 7 ================= * Total Amount Billed is for direct costs only.
ITEM 4 - SUMMARY OF AGGREGATE INVESTMENT Investments in energy-related companies: - -------------------------------------------
(Thousands of Dollars) Total consolidated capitalization as of 12/31/02 $6,626,083 line 1 Total capitalization multiplied by 15% (line 1 multiplied by .15) 993,912 line 2 Greater of $50 million or line 2 $993,912 line 3 Total current aggregate investment: (categorized by major line of energy-related business): Select Energy, Inc. $ 615,092 Northeast Generation Services Company 37,568 Select Energy Contracting, Inc. 28,961 Select Energy New York, Inc. 30,685 Woods Electrical Co., Inc. 9,655 Reeds Ferry Supply Co., Inc. 7 HEC/Tobyhanna Energy Project, Inc. - Yankee Energy Services Company 7,882 E.S. Boulos Company 11,197 R.M. Services, Inc. 13,799 NGS Mechanical, Inc. 10 Acumentrics Corporation 7,500 ERI/HEC EFA-Med, LLC 9 HEC/CJTS Energy Center LLC 12 ---------- Current aggregate investment 762,377 -------- Elimination * 22,525 -------- Total current aggregate investment 739,852 line 4 -------- Difference between the greater of $50 million or 15% of capitalization and the total aggregate investment of the registered holding company system $254,060 line 5 ========
*Elimination is for capital contributions made from a parent company who is a reporting company to a subsidiary who is also a reporting company. ITEM 5 - OTHER INVESTMENTS - ------------------------------------------------------------------------------- Instruction - ----------- This item concerns investments in energy-related and gas-related companies that are excluded from the calculation of aggregate investment under rule 58. - ------------------------------------------------------------------------------- Major Line Other Other of Energy- Investment Investment Related in Last in This Reason for Difference Business U-9C-3 Report U-9C-3 Report in Other Investment - ------------- ------------- ------------- ------------------------ NONE ITEM 6 - FINANCIAL STATEMENTS AND EXHIBITS - ------------------------------------------------------------------------------- Instructions - ------------------------------------------------------------------------------- A. Financial Statements 1. Financial statements are required for reporting companies in which the registered holding company system has at least 50% equity or other ownership interest. For all other rule 58 companies, the registered holding company shall make available to the Commission such financial statements as are available to it. 2. For each reporting company, provide a balance sheet as of the end of the quarter and income statements for the three-month and year- to-date periods ending as of the end of the quarter, together with any notes thereto. Financial statements shall be for the first three quarters of the fiscal year of the registered holding company. 3. If a reporting company and each of its subsidiaries engage exclusively in single category of energy-related or gas-related activity, consolidated financial statements may be filed. 4. Separate financial statements need not be filed for inactive companies or for companies engaged solely in the ownership of interests in energy-related or gas-related companies. B. Exhibits 1. Copies of contracts required to be provided by Item 3 shall be filed as exhibits. 2. A certificate stating that a copy of the report for the previous quarter has been filed with interested state commissions shall be filed as an exhibit. The certificate shall provide the names and addresses of the state commissions. - ------------------------------------------------------------------------------- A. Financial Statements Select Energy, Inc.: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 Northeast Generation Services Company: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 Select Energy Contracting, Inc.: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 Reeds Ferry Supply Co., Inc.: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 HEC/Tobyhanna Energy Project, Inc.: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 Yankee Energy Services Company: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 ERI/HEC EFA-Med, LLC: Not available as of December 31, 2002 E. S. Boulos Company: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 NGS Mechanical, Inc.: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 Select Energy New York, Inc.: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 HEC/CJTS Energy Center LLC: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 Woods Electrical Co., Inc.: Balance Sheet - As of December 31, 2002 Income Statement - Three months and twelve months ended December 31, 2002 Northeast Utilities Parent: 4th quarter not required B. Exhibits Exhibit No. Description - ----------- ----------- 6.B.1.1 Copy of contract required by Item 3 - filed under confidential treatment pursuant to Rule 104(b). 6.B.1.2a Copy of contract required by Item 3 - filed under confidential treatment pursuant to Rule 104(b). 6.B.1.2b Copy of contract required by Item 3 - filed under confidential treatment pursuant to Rule 104(b). 6.B.1.2c Copy of contract required by Item 3 - filed under confidential treatment pursuant to Rule 104(b). 6.B.1.2d Copy of contract required by Item 3 - filed under confidential treatment pursuant to Rule 104(b). 6.B.1.3 Copy of contract required by Item 3 - filed under confidential treatment pursuant to Rule 104(b). 6.B.2.1 The company certifies that a conformed copy of Form U-9C-3 for the previous quarter was filed with the following state commissions: Ms. Louise E. Rickard Acting Executive Secretary Department of Public Utility Control 10 Franklin Square New Britain, CT 06051 Ms. Mary L. Cottrell, Secretary Massachusetts Department of Telecommunications and Energy 100 Cambridge Street Boston, MA 02202 Mr. Thomas B. Getz Executive Director and Secretary State of New Hampshire Public Utilities Commission 8 Old Suncook Road, Building One Concord, NH 03301-7319 SELECT ENERGY, INC. BALANCE SHEET (Unaudited) December 31, 2002 -------------- (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 2,454 Receivables, net 415,918 Accounts receivable from affiliated companies 118,780 Special deposits 72 Derivative assets 101,957 Prepaid wholesale power purchases 19,906 Prepayments and other 38,057 ------------- 697,144 ------------- Property, Plant and Equipment: Competitive energy 12,629 Less: Accumulated depreciation 7,373 ------------- 5,256 Construction work in progress 3,965 ------------- 9,221 ------------- Deferred Debits and Other Assets: Intangibles, net 18,032 Prepaid pension 2,257 Other 89,642 ------------- 109,931 ------------- Total Assets $ 816,296 ============= Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY, INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------- (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------- Current Liabilities: Notes payable to affiliated companies $ 217,200 Accounts payable 387,458 Accounts payable to affiliated companies 10,244 Accrued taxes 19,838 Derivative liabilities 61,204 Other 22,069 ------------ 718,013 ------------ Deferred Credits and Other Liabilities Accumulated deferred income taxes 13,240 Other 49,114 ------------ 62,354 ------------ Capitalization: Common Stockholder's Equity: Common stock, $1 par value - 20,000 shares authorized and 100 shares outstanding - Capital surplus, paid in 249,337 Accumulated deficit (225,781) Accumulated other comprehensive income 12,373 ------------ Common Stockholder's Equity 35,929 ------------ Total Capitalization 35,929 ------------ Total Liabilities and Capitalization $ 816,296 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY, INC. INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------- ------------- (Thousands of Dollars) Operating Revenues $ 397,527 $ 1,250,212 ------------- ------------- Operating Expenses: Purchased power, net interchange power and capacity 427,411 1,335,869 Other 13,083 55,933 Depreciation and amortization 2,698 8,875 Taxes other than income taxes 673 4,509 ------------- ------------- Total operating expenses 443,865 1,405,186 ------------- ------------- Operating Loss (46,338) (154,974) Interest Expense, Net 1,349 5,179 Other Income, Net 6,491 17,210 ------------- ------------- Loss Before Income Tax Benefit (41,196) (142,943) Income Tax Benefit (18,414) (61,065) ------------- ------------- Net Loss $ (22,782) $ (81,878) ============= ============= Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. NORTHEAST GENERATION SERVICES COMPANY BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 1 Receivables, net 5,731 Accounts receivable from affiliated companies 4,098 Taxes receivable 686 Unbilled revenues 1,301 Fuel, materials and supplies, at average cost 5 Prepayments and other 1,964 ------------- 13,786 ------------- Property, Plant and Equipment: Competitive energy 2,980 Less: Accumulated depreciation 826 ------------- 2,154 Construction work in progress 508 ------------- 2,662 ------------- Deferred Debits and Other Assets: Accumulated deferred income taxes 314 Prepaid pension 926 Intangible assets, net and other 22,717 ------------- 23,957 ------------- Total Assets $ 40,405 ============= Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. NORTHEAST GENERATION SERVICES COMPANY BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Notes payable to affiliated companies $ 13,500 Accounts payable 3,014 Accounts payable to affiliated companies 1,421 Other 1,226 -------------- 19,161 -------------- Deferred Credits and Other Liabilities 699 -------------- Capitalization: Long-Term Debt 5,000 -------------- Common Stockholder's Equity: Common stock, $1 par value - 20,000 shares authorized and 100 shares outstanding - Capital surplus, paid in 15,549 Retained earnings 9 Accumulated comprehensive loss (13) -------------- Common Stockholder's Equity 15,545 -------------- Total Capitalization 20,545 -------------- Total Liabilities and Capitalization $ 40,405 ============== Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. NORTHEAST GENERATION SERVICES COMPANY INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ -------------- (Thousands of Dollars) Operating Revenues $ 9,003 $ 52,733 ------------- ------------- Operating Expenses: Operation - Other 11,627 46,899 Maintenance 2,553 12,486 Depreciation and amortization 36 104 Taxes other than income taxes 419 1,841 ------------- ------------- Total operating expenses 14,635 61,330 ------------- ------------- Operating Loss (5,632) (8,597) Interest Expense, Net 166 477 Other Income, Net 762 2,343 ------------- ------------- Loss Before Income Tax Benefit (5,036) (6,731) Income Tax Benefit (2,173) (3,506) ------------- ------------- Net Loss $ (2,863) $ (3,225) ============= ============= Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY CONTRACTING, INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 463 Receivables, net 13,832 Other materials and supplies, at average cost 331 Prepayments and other 564 ------------ 15,190 ------------ Property, Plant and Equipment: Competitive energy 6,310 Less: Accumulated depreciation 3,996 ------------ 2,314 ------------ Deferred Debits and Other Assets: Goodwill, net 17,220 ------------ 17,220 ------------ Total Assets $ 34,724 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY CONTRACTING, INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Notes payable to affiliated companies $ 3,790 Accounts payable 3,823 Accounts payable to affiliated companies 4,439 Accrued taxes 553 Other 1,408 ------------ 14,013 ------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 947 Other 2,984 ------------ 3,931 ------------ Capitalization: Common Stockholder's Equity: Common stock, $1 par value - 100,000 shares authorized and 100 shares outstanding - Capital surplus, paid in 15,124 Retained earnings 1,656 ------------ Common Stockholder's Equity 16,780 ------------ Total Capitalization 16,780 ------------ Total Liabilities and Capitalization $ 34,724 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY CONTRACTING, INC. INCOME STATEMENT (Unaudited)
Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ ------------- (Thousands of Dollars) Operating Revenues $ 15,426 $ 57,681 ------------ ------------ Operating Expenses: Operation 14,150 54,238 Maintenance 116 460 Depreciation 272 1,121 Taxes other than income taxes 77 338 ------------ ------------ Total operating expenses 14,615 56,157 ------------ ------------ Operating Income 811 1,524 Interest Expense, Net 65 270 Other Loss, Net (11) (34) ------------ ------------ Income Before Income Tax Expense 735 1,220 Income Tax Expense 123 318 ------------ ------------ Net Income $ 612 $ 902 ============ ============
Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. REEDS FERRY SUPPLY CO., INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 5 Receivables, net 78 ------------ 83 ------------ Deferred Debits and Other Assets: Goodwill, net 247 ------------ Total Assets $ 330 ============ LIABILITIES AND CAPITALIZATION - ------------------------------------ Current Liabilities: Accounts payable $ 77 Accounts payable to affiliated companies 295 ------------ 372 Capitalization: ------------ Common Stockholder's Equity: Common stock, $1 par value - 200 shares authorized and 100 shares outstanding 4 Capital surplus, paid in 3 Accumulated deficit (49) ------------ Common Stockholder's Equity (42) ------------ Total Capitalization (42) ------------ Total Liabilities and Capitalization $ 330 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. REEDS FERRY SUPPLY CO., INC. INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ ------------- (Thousands of Dollars) Operating Revenues $ 184 $ 836 Operating Expenses 184 836 ------------ ------------ Net Income $ - $ - ============ ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. HEC/TOBYHANNA ENERGY PROJECT, INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 3,557 Receivables, net 897 ----------- 4,454 ----------- Property, Plant and Equipment: Other, net 608 ----------- Deferred Debits and Other Assets: Contracts receivable 28,223 ----------- Total Assets $ 33,285 =========== LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Long-term debt - current portion $ 1,042 Accounts payable to affiliated companies 6,345 Accrued taxes 141 Accrued interest 719 Other 382 ----------- Total current liabilities 8,629 ----------- Capitalization: Long-Term Debt 23,949 ----------- Common Stockholder's Equity: Common stock, $1 par value - 100 shares authorized and outstanding - Retained earnings 707 ----------- Common Stockholder's Equity 707 ----------- Total Capitalization 24,656 ----------- Total Liabilities and Capitalization $ 33,285 =========== Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. HEC/TOBYHANNA ENERGY PROJECT, INC. INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ -------------- (Thousands of Dollars) Interest Expense, Net $ 485 $ 1,970 Other Income, Net 792 2,652 ------------ ------------ Income Before Income Tax Expense 307 682 Income Tax Expense 103 201 ------------ ------------ Net Income $ 204 $ 481 ============ ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. YANKEE ENERGY SERVICES COMPANY BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Accounts receivables from affiliated companies $ 454 Taxes receivable 188 ------------ 642 ------------ Deferred Debits and Other Assets: Accumulated deferred income taxes 436 Investments and other 5,150 ------------ 5,586 ------------ Total Assets $ 6,228 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. YANKEE ENERGY SERVICES COMPANY BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Notes payable to affiliated companies $ 769 Accounts payable 2 Accounts payable to affiliated companies 486 Other 7 ----------- 1,264 ----------- Deferred Credits and Other Liabilities 5 ----------- Capitalization: Common Stockholder's Equity: Common stock, $0 par value - 10,000 shares authorized and 200 shares outstanding 1 Capital surplus, paid in 7,881 Accumulated deficit (2,923) ----------- Common Stockholder's Equity 4,959 ----------- Total Capitalization 4,959 ----------- Total Liabilities and Capitalization $ 6,228 =========== Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. YANKEE ENERGY SERVICES COMPANY INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ ------------- (Thousands of Dollars) Operating Revenues $ 16 $ 567 Operating Expenses: Operation - Other 13 786 Amortization 405 405 ----------- ----------- Total operating expenses 418 1,191 ----------- ----------- Operating Loss (402) (624) Interest Expense, Net 5 65 ----------- ----------- Loss Before Income Tax Expense (407) (689) Income Tax Expense 695 583 ----------- ----------- Net Loss $ (1,102) $ (1,272) =========== =========== Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. E.S. BOULOS COMPANY BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 1,356 Receivables, net 10,617 Accounts receivable from affiliated companies 326 Unbilled revenues 2,800 Materials and supplies 223 ------------ 15,322 ------------ Property, Plant and Equipment: Competitive energy 712 Less: Accumulated depreciation 205 ------------ 507 ------------ Deferred Debits and Other Assets: Accumulated deferred income taxes 6 Goodwill 6,963 Other 29 ------------ 6,998 ------------ Total Assets $ 22,827 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. E.S. BOULOS COMPANY BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Advance from parent, non-interest bearing $ 2,948 Accounts payable 3,324 Accounts payable to affiliated companies 967 Accrued taxes 60 Other 688 ------------ 7,987 ------------ Deferred Credits and Other Liabilities 1,180 ------------ Capitalization: Common Stockholder's Equity: Common stock, $1 par value - 20,000 shares authorized and 100 shares outstanding - Capital surplus, paid in 7,539 Retained earnings 6,121 ------------ Common Stockholder's Equity 13,660 ------------ Total Capitalization 13,660 ------------ Total Liabilities and Capitalization $ 22,827 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. E.S. BOULOS COMPANY INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ -------------- (Thousands of Dollars) Operating Revenues $ 14,080 $ 62,056 ------------ ------------ Operating Expenses: Operating 405 1,496 Maintenance 12,380 56,497 Depreciation 75 134 Taxes other than income taxes 29 29 ------------ ------------ Total operating expenses 12,889 58,156 ------------ ------------ Operating Income 1,191 3,900 Other Income, Net 2 210 ------------ ------------ Income Before Income Tax Expense 1,193 4,110 Income Tax Expense 455 1,395 ------------ ------------ Net Income $ 738 $ 2,715 ============ ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. NGS MECHANICAL, INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 10 ----------- Total Assets $ 10 =========== LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Accounts payable to affiliated companies $ 2 ----------- Capitalization: Common Stockholder's Equity: Common stock, $0 par value - 20,000 shares authorized and 100 shares outstanding - Capital surplus, paid in 10 Accumulated deficit (2) ----------- Common Stockholder's Equity 8 ----------- Total Capitalization 8 ----------- Total Liabilities and Capitalization $ 10 =========== Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. NGS MECHANICAL, INC. INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ ------------- (Thousands of Dollars) Operating Revenues $ - $ - Operating Expenses - 1 ------------ ------------ Net Loss $ - $ (1) ============ ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY NEW YORK, INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 12,077 Receivables, net 38,286 Accounts receivable from affiliated companies 1,491 Special deposits 2,384 Derivative assets 28,816 Prepayments and other 18,240 ------------ 101,294 ------------ Property Plant and Equipment: Competitive energy 440 Less: Accumulated depreciation 251 ------------ 189 ------------ Deferred Debits and Other Assets 4,763 ------------ Total Assets $ 106,246 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY NEW YORK, INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------- Current Liabilities: Accounts payable $ 23,623 Accounts payable to affiliated companies 5,947 Accrued taxes 2,407 Derivative liabilities 4,794 Other 5,884 ------------ 42,655 ------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 8,302 Deferred pension costs 374 Other 17 ------------ 8,693 ------------ Capitalization: Long-Term Debt 20,699 ------------ Common Stockholder's Equity: Common stock, $1 par value - authorized and outstanding 10,000 shares 10 Capital surplus, paid in 9,976 Retained earnings 19,903 Accumulated comprehensive income 4,310 ------------ Common Stockholder's Equity 34,199 ------------ Total Capitalization 54,898 ------------ Total Liabilities and Capitalization $ 106,246 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. SELECT ENERGY NEW YORK, INC. INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ ------------- (Thousands of Dollars) Operating Revenues $ 70,438 $ 272,205 ------------ ------------ Operating Expenses: Purchased power, net interchange power and capacity 58,117 235,150 Other 2,054 8,972 Taxes other than income taxes (668) (2,003) ------------ ------------ Total operating expenses 59,503 242,119 ------------ ------------ Operating Income 10,935 30,086 Interest Expense, Net 190 770 Other Income, Net 80 277 ------------ ------------ Income Before Income Tax Expense 10,825 29,593 Income Tax Expense 4,646 12,385 ------------ ------------ Net Income $ 6,179 $ 17,208 ============ ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. HEC/CJTS ENERGY CENTER LLC BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 1 ------------- 1 ------------- Total Assets $ 1 ============= LIABILITIES AND CAPITALIZATION - ------------------------------------ Capitalization: Common Stockholder's Equity: Capital surplus, paid in $ 12 Accumulated deficit (11) ------------- Common Stockholder's Equity 1 ------------- Total Capitalization 1 ------------- Total Liabilities and Capitalization $ 1 ============= Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. HEC/CJTS ENERGY CENTER LLC INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ ------------- (Thousands of Dollars) Operating Revenues $ - $ - ------------- ------------- Operating Expenses - 2 ------------- ------------- Net Loss $ - $ (2) ============= ============= Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. WOODS ELECTRICAL CO., INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) ASSETS - ------ Current Assets: Cash $ 890 Receivables, net 1,252 Taxes receivable 63 Unbilled revenue 197 Materials and supplies 94 Prepayments and other 85 ------------ 2,581 ------------ Property Plant and Equipment: Competitive energy 290 Less: Accumulated depreciation 15 ------------ 275 ------------ Deferred Debits and Other Assets: Goodwill and other purchased intangible assets, net 7,670 ------------ 7,670 ------------ Total Assets $ 10,526 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. WOODS ELECTRICAL CO., INC. BALANCE SHEET (Unaudited) December 31, 2002 ------------ (Thousands of Dollars) LIABILITIES AND CAPITALIZATION - ------------------------------ Current Liabilities: Advance from parent, non-interest bearing $ 250 Accounts payable 304 Accounts payable to affiliated companies 550 ------------ 1,104 ------------ Deferred Credits and Other Liabilities 80 ------------ Capitalization: Long-Term Debt 4,450 ------------ Common Stockholder's Equity: Common stock, $1 par value - 20,000 shares authorized and 100 shares outstanding - Capital surplus, paid in 5,000 Accumulated deficit (108) ------------ Common Stockholder's Equity 4,892 ------------ Total Capitalization 9,342 ------------ Total Liabilities and Capitalization $ 10,526 ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. WOODS ELECTRICAL CO., INC. INCOME STATEMENT (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2002 2002 ------------ ------------- (Thousands of Dollars) Operating Revenues $ 1,370 $ 3,213 ----------- ------------ Operating Expenses: Other 463 824 Maintenance 1,029 2,482 Depreciation 15 14 Taxes other than income taxes - 14 ----------- ------------ Total operating expenses 1,507 3,334 ----------- ------------ Operating Loss (137) (121) Interest Expense, Net 82 140 Other Income, Net 7 9 ----------- ------------ Loss Before Income Tax Benefit (212) (252) Income Tax Benefit (144) (144) ----------- ------------ Net Loss $ (68) $ (108) =========== ============ Note: In the opinion of the Company, all adjustments necessary for a fair presentation of financial position for the period shown have been made. See accompanying notes to financial statements. Northeast Utilities Parent Select Energy, Inc. Select Energy New York, Inc. Northeast Generation Services Company E.S. Boulos Company NGS Mechanical, Inc. Woods Electrical Co., Inc. Select Energy Contracting, Inc. Reeds Ferry Supply Co., Inc. HEC/Tobyhanna Energy Project, Inc. HEC/CJTS Energy Center LLC Yankee Energy Services Company Notes to Financial Statements (Unaudited) 1. About Northeast Utilities (NU) Northeast Utilities Parent is the parent company of NU subsidiaries. NU's regulated utilities furnish franchised retail electric service in Connecticut, New Hampshire and western Massachusetts through three wholly owned subsidiaries: The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH) and Western Massachusetts Electric Company. Another wholly owned subsidiary, North Atlantic Energy Corporation, previously sold all of its entitlement to the capacity and output of the Seabrook Station nuclear unit (Seabrook) to PSNH under the terms of two life- of-unit, full cost recovery contracts. Seabrook was sold on November 1, 2002. Other subsidiaries include Holyoke Water Power Company, a company engaged in the production of electric power, and Yankee Energy System, Inc. (Yankee), the parent company of Yankee Gas Services Company, Connecticut's largest natural gas distribution system. Several wholly owned subsidiaries of NU provide support services for NU's companies and, in some cases, for other New England utilities. Northeast Utilities Service Company provides centralized accounting, administrative, engineering, financial, information resources, legal, operational, planning, purchasing, and other services to NU's companies. Until the sale of Seabrook on November 1, 2002, North Atlantic Energy Service Corporation had operational responsibility for Seabrook. Three other subsidiaries construct, acquire or lease some of the property and facilities used by NU's companies. NU Enterprises, Inc. is a wholly owned subsidiary of NU and acts as the holding company for certain of NU's competitive energy subsidiaries. Select Energy, Inc. (Select Energy), and its subsidiary Select Energy New York, Inc. (SENY), Northeast Generation Services Company and its subsidiaries (NGS), Select Energy Services, Inc., and its subsidiaries (SESI), Mode 1 Communications, Inc. and Woods Network Services, Inc., engage in a variety of energy-related and telecommunications activities, as applicable, primarily in the competitive energy retail and wholesale commodity, marketing and services fields. Northeast Generation Company acquires and manages generation facilities. E.S. Boulos Company (Boulos), NGS Mechanical, Inc. (NGS Mechanical) and Woods Electrical Co., Inc. (Woods Electrical) are wholly owned subsidiaries of NGS. Select Energy Contracting, Inc. (Select Energy Contracting), Reeds Ferry Supply Co., Inc. (Reeds Ferry), HEC/Tobyhanna Energy Project, Inc., (HEC/Tobyhanna), and HEC/CJTS Energy Center LLC (HEC/CJTS) are wholly owned subsidiaries of SESI. Yankee has certain wholly owned subsidiaries, including Yankee Energy Services Company (YESCO). Select Energy, SENY, NGS, Boulos, NGS Mechanical, Woods Electrical, Select Energy Contracting, Reeds Ferry, HEC/Tobyhanna, HEC/CJTS, and YESCO are "energy-related companies" under rule 58. These footnotes are applicable to the rule 58 companies with financial statements filed in this Form U-9C-3 under Item 6 Section A. 2. About Select Energy Select Energy is an integrated energy business that buys, markets, sells, and trades electricity, gas, oil and energy-related products and services to both wholesale and retail customers in the Northeastern United States. Select Energy procures and delivers energy and capacity required to serve its electric, gas and oil customers. Select Energy, collectively with its affiliated competitive energy businesses, provides a wide range of energy products and energy services. Select Energy is a licensed retail electricity supplier and is registered with local electric distribution companies and is a registered gas marketer with local gas distribution companies in the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Virginia. 3. About SENY SENY is a wholly owned subsidiary of Select Energy and engages in the brokering, marketing, transportation, storage, and sale of energy commodities in the state of New York. 4. About NGS NGS provides management, operation and maintenance services to the electric generation market, as well as to large industrial customers, in the Northeastern United States. NGS also provides consulting services which include engineering services, construction management, permitting, and compliance management. 5. About Boulos Boulos is an electrical contracting company which specializes in high voltage electrical construction and maintenance in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. Boulos is wholly owned by NGS. 6. About NGS Mechanical NGS Mechanical provides mechanical services in certain New England states and New York. NGS Mechanical is wholly owned by NGS. 7. About Woods Electrical Woods Electrical is a wholly owned subsidiary of NGS and is in the electrical contracting business in the state of Connecticut. Woods Electrical is also registered to do business in Maine, Massachusetts and New Hampshire. NGS acquired Woods Electrical on July 1, 2002, and the results of Woods Electrical's operations since July 1, 2002, are included in this report. 8. About Select Energy Contracting Select Energy Contracting designs, manages, and directs the construction of, and/or installation of mechanical, water and electrical systems, energy and other resource consuming equipment. 9. About Reeds Ferry Reeds Ferry is an equipment wholesaler which purchases equipment on behalf of Select Energy Contracting. 10. About HEC/Tobyhanna HEC/Tobyhanna is a special purpose entity established to manage the assets of an Energy Savings Performance Contract at the Tobyhanna Army Depot. 11. About HEC/CJTS HEC/CJTS is a special purpose entity formed to facilitate the financing of SESI's construction of an energy center at the Connecticut Juvenile Training School in Middletown, Connecticut. HEC/CJTS is wholly owned by SESI. 12. About YESCO YESCO has disposed of most of its assets and is winding down its energy- related services for its customers. 13. Public Utility Regulation NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (1935 Act), and is subject to the provisions of the 1935 Act. Arrangements among NU's companies, outside agencies and other utilities covering interconnections, interchange of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) and/or the SEC. The operating subsidiaries are subject to further regulation for rates, accounting and other matters by the FERC and/or applicable state regulatory commissions. 14. Presentation The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 15. New Accounting Standards - Energy Trading and Risk Management Activities In June 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached a consensus on EITF Issue No. 02-3, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," requiring companies engaged in energy trading activities to classify revenues and expenses associated with energy trading contracts on a net basis in revenues, rather than recording revenues for sales and expenses for purchases. While this consensus was subsequently rescinded by the EITF on October 25, 2002, Select Energy and SENY chose to adopt net reporting of energy trading revenues and expenses for contracts that physically settle effective July 1, 2002. Operating revenues and operating expenses for 2002 reflect net reporting but had no effect on net income. On October 25, 2002, the EITF reached additional consensuses in EITF Issue No. 02-3. These consensuses supercede the consensuses the EITF reached in June 2002. The first consensus rescinds EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities for Energy Trading Activities," under which Select Energy and SENY previously accounted for energy trading activities. This consensus requires companies engaged in energy trading activities to discontinue fair value accounting effective January 1, 2003, for contracts that do not meet the definition of a derivative in Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, effective January 1, 2003. Select Energy and SENY adopted this consensus effective October 1, 2002. Management determined that there were no trading contracts subject to fair value accounting that did not meet the definition of a derivative in SFAS No. 133. Accordingly, there was no cumulative effect of an accounting change. The second consensus requires that companies engaged in energy trading activities classify revenues and expenses associated with energy trading contracts on a net basis in revenues effective January 1, 2003. Select Energy and SENY adopted net reporting effective July 1, 2002, before this consensus was reached by the EITF. 16. Derivative Instruments, Market Risk and Risk Management A. Derivative Instruments Effective January 1, 2001, Select Energy and SENY adopted SFAS No. 133, as amended. Derivatives that are utilized for trading purposes are recorded at fair value with changes in fair value included in earnings. Other contracts that are derivatives but do not meet the definition of a cash flow hedge and cannot be designated as being used for normal purchases or normal sales are also recorded at fair value with changes in fair value included in earnings. For those contracts that meet the definition of a derivative and meet the cash flow hedge requirements, the changes in the fair value of the effective portion of those contracts are generally recognized in accumulated other comprehensive income until the underlying transactions occur. For contracts that meet the definition of a derivative but do not meet the hedging requirements, and for the ineffective portion of contracts that meet the cash flow hedge requirements, the changes in fair value of those contracts are recognized currently in earnings. Derivative contracts that are entered into as a normal purchase or sale and will result in physical delivery, and are documented as such, are recorded under accrual accounting. There have been changes to interpretations of SFAS No. 133, and the FASB continues to consider changes and amendments which could affect the way Select Energy and SENY record and disclose derivative and hedging activities in the future. The tables below summarize Select Energy and SENY derivative assets and liabilities at December 31, 2002. These amounts do not include premiums paid, which are recorded as prepayments and amounted to $26.6 million at December 31, 2002. These amounts also do not include premiums received, which are recorded as liabilities and amounted to $29.5 million at December 31, 2002. These amounts relate primarily to energy trading activities. - ------------------------------------------------------------------------------- (Millions of Dollars) Assets Liabilities Total - ------------------------------------------------------------------------------- Select Energy: Trading $ 85.6 $(59.2) $26.4 Nontrading 0.7 -- 0.7 Hedging 15.6 (2.0) 13.6 - ------------------------------------------------------------------------------- Total $101.9 $(61.2) $40.7 =============================================================================== - ------------------------------------------------------------------------------- (Millions of Dollars) Assets Liabilities Total - ------------------------------------------------------------------------------- SENY: Trading $ 19.4 $ (4.8) $14.6 Nontrading 2.2 -- 2.2 Hedging 7.2 -- 7.2 - ------------------------------------------------------------------------------- Total $ 28.8 $ (4.8) $24.0 =============================================================================== Trading: As a market participant in the Northeast United States, Select Energy conducts energy trading activities in electricity, natural gas and oil, and therefore, experiences net open positions. Select Energy manages these open positions with strict policies that limit its exposure to market risk and require daily reporting to management of potential financial exposure. Derivatives used in trading activities are recorded at fair value and included in the consolidated balance sheets as derivative assets or liabilities. Changes in fair value are recognized in operating revenues in the consolidated statements of income in the period of change. The net fair value positions of the trading portfolio at December 31, 2002 were assets of $26.4 million for Select Energy and $14.6 million for SENY. These amounts include intercompany assets and liabilities of $2.1 million. Select Energy's and SENY's trading portfolios include New York Mercantile Exchange (NYMEX) futures and options, the fair value of which is based on closing exchange prices; over-the-counter forwards and options, the fair value of which is based on the mid-point of bid and ask quotes; and bilateral contracts for the purchase or sale of electricity or natural gas, the fair value of which is modeled using available information from external sources based on recent transactions and validated with a gas forward curve and an estimated heat rate conversion. These trading portfolios also include transmission congestion contracts. The fair value of certain transmission congestion contracts is based on market inputs. Market information for other transmission congestion contracts is not available, and those contracts cannot be reliably valued. Management believes the amounts paid for these contracts are equal to their fair value and has established a valuation reserve for changes in fair value in excess of cost. Management conducted a thorough review of the contracts in the trading portfolios in order to adopt EITF Issue No. 02-3 as of October 1, 2002. Based on this review, the significant changes in the energy trading market, and the change in the focus of the energy trading business, certain long-term derivative energy contracts that were previously included in the trading portfolio and valued at $33.9 million as of November 30, 2002 were determined to be nontrading and subsequently designated as normal purchases and sales, as defined by SFAS No. 133, as of that date. Management was able to make this designation based on the high probability that these contracts will result in physical delivery. The impact of the normal purchases and sales designation is that these contracts were adjusted to fair value as of November 30, 2002 and were not and will not be adjusted subsequently for changes in fair value. The $33.9 million carrying value as of November 30, 2002 was reclassified from trading derivative assets to other long-term assets and will be amortized on a straight-line basis to operating expenses over the remaining terms of the contracts, which extend to 2011. Nontrading: Nontrading derivative contracts are for delivery of energy related to Select Energy's and SENY's retail and wholesale marketing activities. These contracts are not entered into for trading purposes, but are subject to fair value accounting because these contracts are derivatives that cannot be designated as normal purchases or sales, as defined by SFAS No. 133. These contracts cannot be designated as normal purchases or sales either because they are included in the New York energy market that settles financially or because the normal purchase and sale designation was not elected by management. The fair value positions of these nontrading derivatives at December 31, 2002 were assets of $0.7 million for Select Energy and $2.2 million for SENY. Hedging: Select Energy and SENY utilize derivative financial and commodity instruments, including futures and forward contracts, to reduce market risk associated with fluctuations in the price of electricity and natural gas purchased to meet firm sales commitments to certain customers. Select Energy and SENY also utilize derivatives, including price swap agreements, call and put option contracts, and futures and forward contracts, to manage the market risk associated with a portion of its anticipated retail supply requirements. These derivatives have been designated as cash flow hedging instruments and are used to reduce the market risk associated with fluctuations in the price of electricity, natural gas, or oil. A derivative that hedges exposure to the variable cash flows of a forecasted transaction (a cash flow hedge) is initially recorded at fair value with changes in fair value recorded in other comprehensive income. Hedges impact earnings when the forecasted transaction being hedged occurs, when hedge ineffectiveness is measured and recorded, when the forecasted transaction being hedged is no longer probable of occurring, or when there is accumulated other comprehensive loss and the hedge and the forecasted transaction being hedged are in a loss position on a combined basis. Select Energy and SENY maintain natural gas service agreements with certain customers to supply gas at fixed prices for terms extending through 2004. Select Energy and SENY have hedged its gas supply risk under these agreements through NYMEX futures contracts. Under these contracts, which also extend through 2004, the purchase price of a specified quantity of gas is effectively fixed over the term of the gas service agreements. At December 31, 2002 the NYMEX futures contracts had a notional value of $30.9 million and was recorded at fair value as a derivative asset of $12.2 million. During 2002, Select Energy determined that cash flow hedges related to the CL&P standard offer service contract were ineffective. These hedges were natural gas derivatives that were used to hedge off-peak electricity purchases for CL&P standard offer sales. As a result of this ineffectiveness, Select Energy transferred $3.9 million related to these cash flow hedges from accumulated other comprehensive income to operating expenses. Also in 2002, Select Energy terminated these cash flow hedges and realized pre-tax income of $5.6 million. In the fourth quarter of 2002, SENY designated new hedges with a derivative asset value of $5.6 million as hedging full requirements contracts in the New York market. B. Market Risk Information Select Energy utilizes the sensitivity analysis methodology to disclose quantitative information for its commodity price risks. Sensitivity analysis provides a presentation of the potential loss of future earnings, fair values or cash flows from market risk-sensitive instruments over a selected time period due to one or more hypothetical changes in commodity prices, or other similar price changes. Under sensitivity analysis, the fair value of the portfolio is a function of the underlying commodity, contract prices and market prices represented by each derivative commodity contract. For swaps, forward contracts and options, fair value reflects management's best estimates considering over-the-counter quotations, time value and volatility factors of the underlying commitments. Exchange-traded futures and options are recorded at fair value based on closing exchange prices. Trading Portfolio: At December 31, 2002, Select Energy has calculated the market price resulting from a 10 percent unfavorable change in forward market prices. That 10 percent change would result in approximately a $2.6 million decline in the fair value of the Select Energy trading portfolio. In the normal course of business, Select Energy also faces risks that are either nonfinancial or non-quantifiable. Such risks principally include credit risk, which is not reflected in this sensitivity analysis. Retail and Wholesale Marketing Portfolio: When conducting sensitivity analyses of the change in the fair value of Select Energy's electricity, natural gas and oil nontrading derivatives portfolio, which would result from a hypothetical change in the future market price of electricity, natural gas and oil, the fair values of the contracts are determined from models that take into account estimated future market prices of electricity, natural gas and oil, the volatility of the market prices in each period, as well as the time value factors of the underlying commitments. In most instances, market prices and volatility are determined from quoted prices on the futures exchange. Select Energy has determined a hypothetical change in the fair value for its retail and wholesale marketing portfolio, which includes cash flow hedges and electricity, natural gas and oil contracts, assuming a 10 percent unfavorable change in forward market prices. At December 31, 2002, an unfavorable 10 percent change in market price would have resulted in a decline in fair value of approximately $4.4 million. The impact of a change in electricity, natural gas and oil prices on Select Energy's retail and wholesale marketing portfolio at December 31, 2002, is not necessarily representative of the results that will be realized when these contracts are physically delivered. C. Other Risk Management Activities Credit Risk Management: Credit risk relates to the risk of loss that NU would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. Credit risks and market risks at the competitive energy subsidiaries are monitored regularly by a Risk Oversight Council operating outside of the business units that create or actively manage these risk exposures to ensure compliance with NU's stated risk management policies. NU tracks and re-balances the risk in its portfolio in accordance with fair value and other risk management methodologies that utilize forward price curves in the energy markets to estimate the size and probability of future potential exposure. NYMEX traded futures and option contracts are guaranteed by the NYMEX and have a lower credit risk. Select Energy has established written credit policies with regard to its counterparties to minimize overall credit risk on all types of transactions. These policies require an evaluation of potential counterparties' financial conditions (including credit ratings), collateral requirements under certain circumstances (including cash in advance, letters of credit, and parent guarantees), and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. This evaluation results in establishing credit limits prior to Select Energy entering into trading activities. The appropriateness of these limits is subject to continuing review. Concentrations among these counterparties may impact Select Energy's overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes to economic, regulatory or other conditions. 17. Special Deposits Special deposits include cash collateral posted in connection with various power purchase and sales agreements. QUARTERLY REPORT OF NORTHEAST UTILITIES SIGNATURE CLAUSE Pursuant to the requirements of the Public Utility Holding Company Act of 1935 and the rules and regulations of the Securities and Exchange Commission issued thereunder, the undersigned company has duly caused this report to be signed on its behalf by the undersigned officer thereunto duly authorized. NORTHEAST UTILITIES ---------------------------- (Registered Holding Company) By: /s/ John P. Stack ------------------------------ John P. Stack (Signature of Signing Officer) John P. Stack ---------------------------------------- Vice President-Accounting and Controller ---------------------------------------- Date: March 26, 2003 ---------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----