Eversource 2005 Annual Report Download - page 60

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hedge ineffectiveness is measured and recorded, when the forecasted
transaction being hedged is no longer probable of occurring, or when
there is an accumulated other comprehensive loss and when the hedge
and the forecasted transaction being hedged are in a loss position on a
combined basis. The settlements of cash flow hedges are recorded in
the same income statement line item as the forecasted transaction,
typically fuel, purchased and net interchange power.
For further information regarding these contracts and their accounting,
see Note 6, “Derivative Instruments,” to the consolidated financial
statements.
G. Utility Group Regulatory Accounting
The accounting policies of the Utility Group conform to accounting
principles generally accepted in the United States of America applicable
to rate-regulated enterprises and historically reflect the effects of the
rate-making process in accordance with SFAS No. 71, “Accounting for
the Effects of Certain Types of Regulation.”
The transmission and distribution businesses of CL&P, PSNH and
WMECO, along with PSNH’s generation business and Yankee Gas’
distribution business, continue to be cost-of-service rate regulated, and
management believes that the application of SFAS No. 71 to those
businesses continues to be appropriate. Management also believes
it is probable that NU’sUtility Group companies will recover their
investments in long-lived assets, including regulatory assets. In addition,
all material net regulatory assets are earning an equity return, except
for securitized regulatory assets, which are not supported by equity
and substantial portions of the unrecovered contractual obligations
regulatory assets. New Hampshire’s electric utility industry restructuring
laws have been modified to delay the sale of PSNH’s fossil and hydro-
electric generation assets until at least April of 2006. There has been
no regulatory action to the contrary, and management currently has no
plans to divest these generation assets. As the New Hampshire Public
Utilities Commission (NHPUC) has allowed and is expected to continue
to allow rate recovery of a return on and recovery of these assets, as
well as all operating expenses, PSNH meets the criteria for the application
of SFAS No. 71. Generation costs that arenot currently recovered in
rates are deferred for future recovery. Stranded costs related to generation
assets aredeferred for recovery as stranded costs under the “Agreement
to Settle PSNH Restructuring” (Restructuring Settlement). Part 3
stranded costs are non-securitized regulatory assets that 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 its Part 3 costs by the middle of 2006.
Regulatory Assets: The components of regulatory assets are as follows:
At December 31,
(Millions of Dollars) 2005 2004
Recoverable nuclear costs $44.1 $52.0
Securitized assets 1,340.9 1,537.4
Income taxes, net 332.5 316.3
Unrecovered contractual obligations 327.5 354.7
Recoverable energy costs 193.0 255.0
Other 245.9 230.8
Totals $2,483.9 $2,746.2
Included in other regulatory assets above of $245.9 million at
December 31, 2005 are the regulatory assets recorded associated
with the implementation of FIN 47, “Accounting for Conditional Asset
Retirement Obligations - an interpretation of FASB Statement No. 143,”
totaling $47.3 million. A portion of these regulatory assets totaling
$17.3 million has been approved for deferred accounting treatment.
At this time, management believes that the remaining regulatory
assets are probable of recovery.
Additionally, the Utility Group had $11.2 million and $11.6 million of
regulatory costs at December 31, 2005 and 2004, respectively, that are
included in deferred debits and other assets – other on the accompanying
consolidated balance sheets. These amounts represent regulatory
costs that have not yet been approved by the applicable regulatory
agency. Management believes these costs are recoverable in future
regulated rates.
Recoverable Nuclear Costs: PSNH recorded a regulatory asset in conjunction
with the sale of its share of Millstone 3 in March of 2001 with an
unamortized balance of $26.1 million and $29.7 million at December
31, 2005 and 2004, respectively, which is included in recoverable
nuclear costs. Also included in recoverable nuclear costs at December
31, 2005 and 2004 are $18 million and $22.3 million, respectively,
primarily related to WMECO’s share of Millstone 1 recoverable nuclear
costs associated with the undepreciated plant and related assets at
the time Millstone 1 was shutdown.
Securitized Assets: In March of 2001, CL&P issued $1.4 billion in rate
reduction certificates. CL&P used $1.1 billion of the proceeds from that
issuance to buyout or buydown certain contracts with independent
power producers (IPP). The unamortized CL&P securitized asset balance
is $731.4 million and $850 million at December 31, 2005 and 2004,
respectively. CL&P used the remaining proceeds from the issuance of
the rate reduction certificates to securitize a portion of its SFAS No.
109, “Accounting for Income Taxes,” regulatory asset. The securitized
SFAS No. 109 regulatory asset had an unamortized balance of $124.2
million and $144.3 million at December 31, 2005 and 2004, respectively.
In April of 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 affiliated power contracts with North Atlantic Energy
Corporation (NAEC). The unamortized PSNH securitized asset balance
is $354.5 million and $392.2 million at December 31, 2005 and 2004,
respectively. In January of 2002, PSNH issued an additional $50 million
in rate reduction bonds and used the proceeds from that issuance to
repay short-termdebt that was incurred to buyout a purchased-power
contract in December of 2001. The unamortized PSNH securitized
asset balance for the January of 2002 issuance is $20.5 million and
$29.4 million at December 31, 2005 and 2004, respectively.
In May of 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 unamortized WMECO securitized asset balance is
$110.3 million and $121.5 million at December 31, 2005 and 2004,
respectively.
Securitized assets are being recovered over the amortization period of
their associated rate reduction certificates and bonds. All outstanding
CL&P rate reduction certificates are scheduled to fully amortize by
December 30, 2010, while PSNH rate reduction bonds are scheduled to
fully amortize by May 1, 2013, and WMECO rate reduction certificates
arescheduled to fully amortize by June 1, 2013.