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NU Marketing Losses Escalate; Plans Divestiture of Generation, Retail Marketing

Northeast Utilities (NU) reported a third quarter 2005 loss of $94.5 million, or $0.73 per share, compared with a loss of $7.9 million, or $0.06 per share, in the third quarter of 2004 with much of the loss attributed to unfavorable mark to market results in its competitive energy wholesale marketing and services businesses which it plans to divest. The company also announced it was working on other divestitures of unregulated business units.

NU Enterprises Inc. (NUEI), the holding company for Select Energy marketing and NU's other competitive businesses, lost a total of $129.6 million in the third quarter of 2005 and $344.1 million in the first nine months of 2005, compared with losses of $43 million in the third quarter of 2004 and $20.2 million in the first nine months of 2004. Third quarter results in both 2005 and 2004 were significantly affected by the marking to market of Select Energy's wholesale energy positions.

Charles Shivery, NU chairman, attributed the 2005 losses to marking to market the longer-term wholesale electricity contracts and to heavy electric loads in the summer of 2005 that required Select Energy to purchase additional energy supplies at higher than projected price levels.

NU on Monday said it will divest its other competitive businesses -- generation and retail marketing -- to focus entirely on its regulated transmission, distribution and generation operations. The company expects to complete the sales by the end of 2006, and will apply net sale proceeds to debt reduction and capital investment in its regulated businesses.

NU's 1,440 MW of competitive generation are located in Massachusetts and Connecticut and include approximately 1,110 MW of pumped storage units, approximately 165 MW of conventional hydroelectric generation, 145 MW of base load coal-fired generation, and about 20 MW of combustion turbine peaking generation. "We expect these units to attract considerable interest," said Shivery.

NU will retain nearly 1,200 MW of regulated generation located in New Hampshire, which cost-effectively serves customers of its Public Service Company of New Hampshire (PSNH) subsidiary.

NU's decision to divest two of its four competitive business lines -- wholesale marketing and energy services -- was announced in March 2005, and NU said it has since made significant progress in implementing that decision. Shivery reported that accomplishments since that date include:

NU's four competitive businesses, all of which are now slated for divestiture, are retail marketing, wholesale marketing, energy services, and competitive generation. As previously indicated, retail marketing results were negatively impacted by a requirement to account for the sourcing of its customers' electric requirements at current market prices for sales contracts signed in the past at lower prices. This was necessitated by the fact that the source of those contracts, wholesale marketing, is being divested.

As a result, a first quarter 2005 gain on those retail contracts of $59.9 million was recorded, but second and third quarter 2005 results were negatively affected. In the third quarter of 2005, that factor lowered retail marketing results by approximately $19.6 million. Absent that impact, retail marketing earned $1.1 million in the third quarter of 2005 and $3.9 million in the first nine months of 2005.

NUEI's retail marketing business serves approximately 30,000 customer accounts in three power pools in the northeast and mid-Atlantic United States and is expected to generate approximately $1.1 billion in revenues in 2005.

NU reported a modest improvement in third quarter regulated results compared with 2004. The company reaffirmed its earlier earnings guidance for 2005 of between $1.22 per share and $1.30 per share for its regulated companies, including earnings of between $0.96 per share and $1.00 per share at its electric and natural gas distribution businesses and between $0.26 per share and $0.30 per share at its regulated electric transmission business.

NU also projects parent company expenses of between $0.08 per share and $0.13 per share. Through the first three quarters of 2005, NU's regulated businesses earned $0.88 per share, and NU recorded parent and other expenses of approximately $0.08 per share.

NU established 2006 earnings guidance of between $1.21 per share and $1.31 per share for its regulated business, as well as parent company expenses of between $0.09 per share and $0.12 per share. The regulated earnings range includes projected earnings of between $0.89 per share and $0.96 per share at NU's electric and natural gas distribution businesses and between $0.32 per share and $0.35 per share at NU's electric transmission businesses.

Those ranges reflect the expected issuance of additional common equity in either late 2005 or early 2006. NU is not providing guidance for 2005 or 2006 for its competitive energy businesses. However, Shivery said that fourth quarter 2005 results could be adversely affected by the decision to exit the competitive retail generation business, as accounting principles may require the company to recognize impairments and mark to market losses in the period.

NU also provided progress reports on its continuing capital investment program. Shivery said NU's capital expenditures totaled $521.5 million through the first nine months of 2005, including $508.1 million in its regulated businesses. NU continues to project total capital expenditures of $740 million in 2005.

Shivery said five of NU's major infrastructure projects, representing a projected capital investment of more than $1.6 billion by the end of 2009, remain on schedule. Connecticut Light & Power's (CL&P) 21-mile, 345-kV transmission project between Bethel and Norwalk, CT, is now approximately 50% complete. The Yankee Gas Services Company's (Yankee Gas) 1.2 Bcf LNG storage facility in Waterbury, CT, is now about 35% complete. Also, PSNH is approximately 65% complete on its conversion of a 50 MW, coal-fired generating unit at Schiller Station in Portsmouth, NH, to burn wood chips.

CL&P continues to prepare the final engineering and construction documents for a 69-mile, 345-kV transmission line between Norwalk and Middletown, CT, and on a nine-mile, 115-kV transmission project between Norwalk and the Glenbrook section of Stamford, CT. Both of those projects received regulatory approval earlier this year.

NU said it expects to spend up to $4.3 billion on capital projects in its regulated businesses from 2006 through 2010, investing up to $2.3 billion on high-voltage electric transmission and approximately $2 billion on regulated electric and gas distribution and regulated generation, including the Schiller Station and gas storage facilities.

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