Eversource 2004 Annual Report Download - page 60

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In April 2001, PSNH issued rate reduction bonds in the amount of
$525 million. PSNH used the majority of the proceeds from that
issuance to buydown its power contracts with NAEC. The remaining
PSNH securitized asset balance is $392.2 million and $427.5 million
at December 31, 2004 and 2003, respectively.
In January 2002, PSNH issued an additional $50 million in rate reduction
bonds and used the proceeds from that issuance to repay short-term debt
that was incurred to buyout a purchased-power contract in December
2001. The remaining PSNH securitized asset balance for the January
2002 issuance is $29.4 million and $37.9 million at December 31, 2004
and 2003, respectively.
In May 2001, WMECO issued $155 million in rate reduction certificates
and used the majority of the proceeds from that issuance to buyout
an IPP contract. The remaining WMECO securitized asset balance is
$121.5 million and $132 million at December 31, 2004 and 2003,
respectively.
Securitized assets are being recovered over the amortization period of
their associated rate reduction certificates and bonds. All outstanding
rate reduction certificates of CL&P are scheduled to amortize by
December 30, 2010, while PSNH rate reduction bonds are scheduled to
fully amortize by May 1, 2013, and WMECO rate reduction certificates
are scheduled to fully amortize by June 1, 2013.
Income Taxes, Net: The tax effect of temporary differences (differences
between the periods in which transactions affect income in the financial
statements and the periods in which they affect the determination of
taxable income) is accounted for in accordance with the rate-making
treatment of the applicable regulatory commissions and SFAS No. 109.
Differences in income taxes between SFAS No. 109 and the rate-making
treatment of the applicable regulatory commissions are recorded as
regulatory assets. For further information regarding income taxes, see
Note 1H, “Summary of Significant Accounting Policies — Income Taxes,”
to the consolidated financial statements.
Unrecovered Contractual Obligations: CL&P, WMECO and PSNH, under the
terms of contracts with the Yankee Companies, are responsible for
their proportionate share of the remaining costs of the units, including
decommissioning. These amounts are recorded as unrecovered contractual
obligations. A portion of these obligations for CL&P was securitized in
2001 and is included in securitized regulatory assets. Amounts for PSNH
are being recovered along with other stranded costs. See Note 6E,
“Deferred Contractual Obligations” for additional information.
Recoverable Energy Costs: Under the Energy Policy Act of 1992 (Energy Act),
CL&P, PSNH, WMECO, and NAEC were assessed for their proportionate
shares of the costs of decontaminating and decommissioning uranium
enrichment plants owned by the United States Department of Energy
(DOE) (D&D Assessment). The Energy Act requires that regulators treat
D&D Assessments as a reasonable and necessary current cost of fuel,
to be fully recovered in rates like any other fuel cost. CL&P, PSNH and
WMECO no longer own nuclear generation but continue to recover these
costs through rates. At December 31, 2004 and 2003, NU’s total D&D
Assessment deferrals were $13.9 million and $18 million, respectively,
and have been recorded as recoverable energy costs. Also included in
recoverable energy costs at December 31, 2004, is $32.5 million related
to federally mandated congestion charges. During 2003, CL&P paid for
a temporary generation resource in southwest Connecticut to help
maintain reliability. Costs for this resource of $15.8 million were recorded
as recoverable energy costs at December 31, 2003.
In conjunction with the implementation of restructuring under the
Restructuring Settlement on May 1, 2001, PSNH’s fuel and purchased-
power adjustment clause (FPPAC) was discontinued. At December 31,
2004 and 2003, PSNH had $144.8 million and $162.2 million, respectively,
of recoverable energy costs deferred under the FPPAC. Under the
Restructuring Settlement, the FPPAC deferrals are recovered as a
Part 3 stranded cost through a stranded cost recovery charge. Also
included in PSNH’s recoverable energy costs are deferred costs associated
with certain contractual purchases from IPPs. These costs are also
treated as Part 3 stranded costs and amounted to $50.1 million and
$56.1 million at December 31, 2004 and 2003, respectively.
The regulated rates of Yankee Gas include a purchased gas adjustment
clause under which gas costs above or below base rate levels are
charged to or credited to customers. Differences between the actual
purchased gas costs and the current rate recovery are deferred and
recovered or refunded in future periods. These amounts are recorded as
recoverable energy costs of $13.7 million and $2.9 million at December 31,
2004 and 2003, respectively.
The majority of the recoverable energy costs are currently recovered in
rates from the customers of CL&P, PSNH, WMECO, and Yankee Gas.
PSNH’s recoverable energy costs are Part 3 stranded costs which are
non-securitized regulatory assets which must be recovered by a recovery
end date determined in accordance with the Restructuring Settlement
or be written off. Based on current projections, PSNH expects to fully
recover all of its Part 3 costs by the recovery end date.
Regulatory Liabilities: The Utility Group had $1.1 billion and $1.2 billion of
regulatory liabilities at December 31, 2004 and 2003, respectively.
These amounts are comprised of the following:
At December 31,
(Millions of Dollars) 2004 2003
Cost of removal $ 328.8 $ 334.0
CL&P CTA, GSC, and SBC overcollections 200.0 333.7
PSNH cumulative deferrals — SCRC 208.6 160.4
Regulatory liabilities offsetting
Utility Group derivative assets 191.4 117.0
Other regulatory liabilities 141.0 219.2
Totals $1,069.8 $1,164.3
Under SFAS No. 71, regulated utilities, including NU’s Utility Group
companies, currently recover amounts in rates for future costs of
removal of plant assets. Historically, these amounts were included as a
component of accumulated depreciation until spent. These amounts are
classified as regulatory liabilities on the accompanying consolidated
balance sheets in accordance with SFAS No. 143, “Accounting for Asset
Retirement Obligations.”
The Competitive Transition Assessment (CTA) allows CL&P to recover
stranded costs, such as securitization costs associated with the rate
reduction bonds, amortization of regulatory assets, and IPP over market
costs while the Generation Service Charge (GSC) allows CL&P to recover
the costs of the procurement of energy for standard offer service. The
System Benefits Charge (SBC) allows CL&P to recover certain regulatory
and energy public policy costs, such as public education outreach costs,
hardship protection costs, transition period property taxes, and displaced
workers protection costs. The Stranded Cost Recovery Charge (SCRC)
allows PSNH to recover its stranded costs.