Eversource 2004 Annual Report Download - page 69

67
Additionally, in conjunction with the divestiture of its generation assets,
NU recorded $1.2 million in curtailment income in 2002, all of which
was recorded as a regulatory liability and did not impact earnings.
Effective February 1, 2002, certain CL&P and Utility Group employees
who were displaced were eligible for a Voluntary Retirement Program
(VRP). The VRP supplements the Pension Plan and provides special
provisions. Eligible employees include non-bargaining unit employees
or employees belonging to a collective bargaining unit that has agreed
to accept the VRP who are active participants in the Pension Plan at
January 1, 2002, and that have been displaced as part of the reorganization
between January 22, 2002 and March 2003. Eligible employees received
a special retirement benefit under the VRP whose value was roughly
equivalent to a multiple of base pay based on years of credited service.
During 2002, NU recorded an expense of $8.1 million associated with
special pension termination benefits related to the VRP. NU believes
that the cost of the VRP is probable of recovery through regulated utility
rates, and accordingly, the $8.1 million was recorded as a regulatory
asset with no impact on 2002 earnings.
Market-Related Value of Pension Plan Assets: NU bases the actuarial
determination of pension plan income or expense on a market-related
valuation of assets, which reduces year-to-year volatility. This market-
related valuation calculation recognizes investment gains or losses over
a four-year period from the year in which they occur. Investment gains
or losses for this purpose are the difference between the expected
return calculated using the market-related value of assets and the
actual return based on the fair value of assets. Since the market-related
valuation calculation recognizes gains or losses over a four-year period,
the future value of the market-related assets will be impacted as previously
deferred gains or losses are recognized.
Postretirement Benefits Other Than Pensions: NU’s subsidiaries also provide
certain health care benefits, primarily medical and dental, and life
insurance benefits through a benefit plan to retired employees (PBOP
Plan). These benefits are available for employees retiring from NU who
have met specified service requirements. For current employees and
certain retirees, the total benefit is limited to two times the 1993 per
retiree health care cost. These costs are charged to expense over the
estimated work life of the employee. NU uses a December 31st
measurement date for the PBOP Plan.
NU annually funds postretirement costs through external trusts with
amounts that have been rate-recovered and which also are tax deductible.
Currently, there are no pending regulatory actions regarding postretirement
benefit costs and there are no postretirement benefit costs that are
deferred as regulatory assets.
Impact of New Medicare Changes on PBOP: On December 8, 2003, the President
signed into law a bill that expands Medicare, primarily by adding a
prescription drug benefit starting in 2006 for Medicare-eligible retirees
as well as a federal subsidy to plan sponsors of retiree health care
benefit plans who provide a prescription drug benefit at least actuarially
equivalent to the new Medicare benefit.
Based on the current PBOP Plan provisions, NU’s actuaries believe that
NU will qualify for this federal subsidy because the actuarial value of
NU’s PBOP Plan is estimated to be 60 percent greater than that of the
standard Medicare benefit. NU will directly benefit from the federal
subsidy for retirees of PSNH and NAESCO who retired before 1993, and
other NU retirees who retired before 1991. For other retirees, management
does not believe that NU will benefit from the subsidy because NU’s
cost support for these retirees is capped at a fixed dollar commitment.
Based on the most recent actuarial valuation as of January 1, 2004, the
impact of the Medicare program has been revised from a $19.5 million
decrease in the PBOP benefit obligation at December 31, 2003 to
$27 million at January 1, 2004. The total $27 million decrease consists
of $20 million as a direct result of the subsidy for certain non-capped
retirees and $7 million related to changes in participation assumptions
for capped retirees and future retirees as a result of the subsidy. The
total $27 million decrease is currently being amortized as a reduction
to PBOP expense over approximately 13 years. For the year ended
December 31, 2004, this reduction in PBOP expense totaled approximately
$3.6 million, including amortization of the actuarial gain of $2 million
and a reduction in interest cost and service cost based on a lower PBOP
benefit obligation of $1.6 million.
PBOP Settlements, Curtailments and Special Termination Benefits: There were no
settlements, curtailments or special termination benefits in 2004 or 2003.
In 2002, NU recorded PBOP special termination benefits income of
$1.2 million related to the sale of Seabrook. CL&P and PSNH recorded
their shares of this curtailment as reductions to stranded costs.