Eversource 2005 Annual Report Download - page 62

60
Details of income tax (benefit)/expense are as follows:
For the Years Ended December 31,
(Millions of Dollars) 2005 2004 2003
The components of the federal and state income tax provisions are:
Current income taxes:
Federal $ 15.0 $(53.5) $143.3
State 9.1 (6.5) 37.1
Total current 24.1 (60.0) 180.4
Deferred income taxes, net
Federal (152.6) 120.3 (90.0)
State (46.5) (4.8) (35.9)
Total deferred (199.1) 115.5 (125.9)
Investment tax credits, net (3.7) (3.8) (3.8)
Income tax benefit/(expense)
related to discontinued operations 15.9 (1.0) (3.1)
Income tax (benefit)/expense $(162.8) $ 50.7 $ 47.6
Areconciliation between income
tax (benefit)/expense and the
expected tax (benefit)/expense at
the statutory rate is as follows:
Expected federal income tax
(benefit)/expense $(149.0) $ 60.9 $ 62.1
Tax effect of differences:
Depreciation (3.5) 5.8 4.0
Amortization of regulatory assets 1.8 1.8 1.8
Investment tax credit amortization (3.7) (3.8) (3.8)
State income taxes, net of
federal benefit(43.4) (5.4) 0.8
Medicaresubsidy (6.0) (1.0) —
Dividends received deduction (0.3) (1.2) (1.4)
Tax asset valuation allowance/
reserve adjustments 18.5 1.9 (5.4)
Other, net 6.9 (7.3) (7.4)
(178.7) 51.7 50.7
Income tax benefit/(expense)
from discontinued operations 15.9 (1.0) (3.1)
Income tax (benefit)/expense $(162.8) $ 50.7 $ 47.6
NU and its subsidiaries file a consolidated federal income tax return.
NU and its subsidiaries file state income tax returns, with some filing
in more than one state. NU and its subsidiaries are parties to a tax
allocation agreement under which taxable subsidiaries pay no more
taxes than they would have otherwise paid had they filed a standalone
tax returnand subsidiaries generating tax losses are paid for their
losses when utilized.
The tax effects of temporary differences that give rise to the current
and long-term net accumulated deferred tax obligations are as follows:
At December 31,
(Millions of Dollars) 2005 2004
Deferred tax liabilities – current:
Change in fair value of energy contracts $7.3 $74.7
Other 35.6 33.0
Total deferred tax liabilities – current 42.9 107.7
Deferred tax assets – current:
Change in fair value of energy contracts 50.7 76.3
Other 15.9 14.7
Total deferred tax assets – current 66.6 91.0
Net deferred tax (assets)/liabilities – current (23.7) 16.7
Deferred tax liabilities – long-term:
Accelerated depreciation and
other plant-related differences 1,120.7 1,105.5
Employee benefits 165.0 169.2
Regulatory amounts:
Securitized contract termination
costs and other 223.6 252.1
Income tax gross-up 215.1 215.1
Other 239.3 227.2
Total deferred tax liabilities – long-term 1,963.7 1,969.1
Deferred tax assets – long-term:
Regulatorydeferrals 365.8 365.0
Employee benefits 112.0 86.7
Income tax gross-up 34.0 32.6
Other 175.4 63.0
Total deferred tax assets – long-term 687.2 547.3
Less: valuation allowance 29.8 12.6
Net deferred tax assets – long-term 657.4 534.7
Net deferred tax liabilities – long-term 1,306.3 1,434.4
Net deferred tax liabilities $1,282.6 $1,451.1
At December 31, 2005, NU had state net operating loss carry forwards
of $371.6 million that expire between December 31, 2007 and
December 31, 2025. At December 31, 2005, NU also had state credit
carry forwards of $21.2 million that expire on December 31, 2010.
At December 31, 2004, NU had state net operating loss carry forwards
of $206.2 million that expire between December 31, 2006 and
December 31, 2024. At December 31, 2004, NU also had state credit
carry forwards of $9.3 million that expire on December 31, 2009.
In 2000, NU requested from the Internal Revenue Service (IRS) a
Private Letter Ruling (PLR) regarding the treatment of unamortized
investment tax credits (ITC) and excess deferred income taxes (EDIT)
related to generation assets that have been sold. EDIT are temporary
differences between book and taxable income that were recorded
when the federal statutorytax rate was higher than it is now or when
those differences were expected to be resolved. The PLR addresses
whether or not EDIT and ITC can be returned to customers, which
without a PLR management believes would represent a violation of
current tax law. The IRS declared a moratorium on issuing PLRs until
final regulations on the return of EDIT and ITC to regulated customers
areissued by the TreasuryDepartment. Proposed regulations were
issued in December of 2005 withdrawing proposed regulations issued
in March of 2003. The new proposed regulations would generally allow
EDIT and ITC generated by property that is no longer regulated to
be returned to regulated customers without violating the tax law.