Eversource 2005 Annual Report Download - page 44

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NU Enterprises’ lower fuel costs of $642 million are primarily due to
the mark-to-market accounting for certain wholesale contracts related
to the business to be exited ($693 million) as a result of netting
revenues with expenses. Additionally, fuel costs are lower due to the
wholesale marketing business ($304 million) primarily due to lower
sales volumes. These decreases are partially offset by higher fuel
costs and volumes in the retail marketing business ($355 million).
Other Operation
Other operation expense increased $109 million in 2005, primarily due
to higher RMR and other power pool related expenses ($78 million). In
addition, administrative and general expenses increased primarily due
to higher pension costs and other benefits ($33 million), employee
termination and benefit plan curtailment costs ($27 million) of which
$21 million relates to regulated distribution that impact earnings, and
higher uncollectible expenses ($7 million). These increases are partially
offset by lower expenses for NU Enterprises as a result of decreased
cost of services primarily in the services business ($29 million).
Wholesale Contract Market Changes, Net
See Note 2, “Wholesale Contract Market Changes,” to the consolidated
financial statements for a description and explanation of these charges.
Restructuring and Impairment Charges
See Note 3, “Restructuring and Impairment Charges,” to the
consolidated financial statements for a description and explanation
of these charges.
Maintenance
Maintenance expense increased $12 million in 2005, primarily due to
increased electric distribution expenses, including higher overhead and
underground line, substation and transformer maintenance expenses
($14 million) in partdue to heat related and stormactivity.This
increase is partially offset by lower maintenance expenses at the
generating plants of NU Enterprises and PSNH ($4 million).
Depreciation
Depreciation increased $11 million in 2005 primarily due to higher
Utility Group depreciation expense resulting from higher plant balances
($16 million), partially offset by lower Yankee Gas depreciation expense
as allowed in the January 1, 2005 rate decision, due to adequate
reserve levels for cost of removal ($6 million).
Amortization
Amortization increased $65 million in 2005 primarily due to acceleration
in the recovery of PSNH’s non-securitized stranded costs as a result of
the positive reconciliation of stranded cost revenues and expenses
($47 million). Amortization also increased due to higher amortization
related to the CL&P’s recovery of transition charges as a result of higher
wholesale revenues ($34 million). These increases are partially offset
by lower WMECO recovery of stranded costs ($18 million) primarily
due to the decrease in WMECO’s transition component of retail rates.
Amortization of Rate Reduction Bonds
Amortization of rate reduction bonds increased $11 million in 2005 due
to the repayment of a higher principal amount as compared to 2004.
Taxes Other Than Income Taxes
Taxes other than income taxes increased $16 million in 2005 primarily
due to higher Connecticut gross earnings tax related to higher CL&P
and Yankee Gas revenues.
Interest Expense, Net
Interest expense, net increased $22 million in 2005, primarily due to
higher interest on long-term debt ($23 million) as a result of Utility
Group issuance of new long-term debt in 2005. New long-term debt of
$350 million includes the issuance of $200 million related to CL&P in
April and the issuance of $50 million per company related to Yankee
Gas, WMECO, and PSNH in July, August and October, respectively.
See the liquidity section for a further description and explanation of the
debt issued. Interest expense, net is also higher due to higher short-
term debt levels primarily at NU Parent ($6 million). In addition, interest
expense, net increased at CL&P due to higher other interest as a result
of the final streetlight refund docket ($3 million). These increases are
partially offset by lower rate reduction bond interest resulting from
lower principal balances outstanding at CL&P, PSNH and WMECO
($11 million).
Other Income, Net
Other income, net increased $22 million in 2005 primarily due to higher
allowance for funds used in construction ($8 million), higher investment
income ($8 million), a net decrease in investment write-downs ($7 million),
and a higher CL&P procurement fee ($6 million), partially offset by a
2005 environmental reserve for a manufactured gas plant site at HWP
($5 million).
Income Tax (Benefit)/Expense
Included in the notes to the consolidated financial statements is a
reconciliation of actual and expected tax expense. The tax effect of
temporary differences is accounted for in accordance with the rate-making
treatment of the applicable regulatory commissions. In past years,
this rate-making treatment has required the company to provide the
customers with a portion of the tax benefits associated with accelerated
tax depreciation in the year it is generated (flow-through depreciation).
As these flow-through differences turnaround, higher tax expense
is recorded.
Income tax expense decreased $214 million to a benefit of $163 million
in 2005 from an expense of $51 million in 2004 primarily due to a loss
beforeincome tax expense and greater favorable flow through
adjustments, offset by increases to the deferred state income tax
valuation allowance. The increase in the state income tax valuation
allowance was required due to the magnitude of the tax losses limiting
the ability to utilize the state tax benefits within the applicable state tax
carryforward period.