Eversource 2005 Annual Report Download - page 63

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The new proposed regulations would only apply to property that ceases
to be regulated public utility property after December of 2005. As
such, the EDIT and ITC cannot be used to reduce customer rates.
The ultimate results of this contingency could have a positive impact
on CL&P’s earnings.
I. Accounting for R.M. Services, Inc.
NU had an investment in R.M. Services, Inc. (RMS), a provider of
consumer collection services. In January of 2003, the FASB issued
FIN 46, “Consolidation of Variable Interest Entities,” which was effective
for NU on July 1, 2003. RMS is a variable interest entity (VIE), as defined.
FIN 46, as revised, required that the party to a VIE that absorbs the
majority of the VIE’s losses, defined as the “primary beneficiary,”
consolidate the VIE. Upon adoption of FIN 46 on July 1, 2003,
management determined that NU was the “primary beneficiary” of
RMS under FIN 46 and that NU was now required to consolidate RMS
into its financial statements. To consolidate RMS, NU eliminated the
carrying value of its preferred stock investment in RMS and recorded
the assets and liabilities of RMS. This adjustment resulted in a negative
$4.7 million after-tax cumulative effect of an accounting change in
the thirdquarter of 2003, and the assets and liabilities recorded are
summarized as follows (millions of dollars):
Current assets $ 0.6
Net property, plant and equipment 1.7
Other noncurrent assets 1.5
Current liabilities (0.6)
3.2
Elimination of investment at July 1, 2003 (10.5)
Pre-tax cumulative effect of accounting change (7.3)
Income tax benefit 2.6
Cumulative effect of accounting change $ (4.7)
Prior to the consolidation of RMS on July 1, 2003, NU recorded $1.4
million of pre-tax investment write-downs in 2003. After RMS was
consolidated on July 1, 2003, $1.9 million of after-tax operating losses
were included in earnings.
On June 30, 2004, NU sold virtually all of the assets and liabilities of RMS
for $3 million and recorded a gain on the sale totaling $0.8 million.
Prior to the sale, RMS had after-tax operating losses totaling $1 million
in 2004. These charges and gains are included in Note 1V, “Summary
of Significant Accounting Policies – Other Income, Net,” and in the
other segment in Note 17, “Segment Information,” to the consolidated
financial statements.
NU has no other VIE’s for which it is defined as the “primary beneficiary.”
J. Other Investments
NU maintains certain other investments. These investments include
Acumentrics Corporation (Acumentrics), a developer of fuel cell and
power quality equipment, and BMC Energy LLC (BMC), an operator
of renewable energy projects.
Acumentrics: Management determined that the value of NU’s investment
in Acumentrics declined in 2004 and that the decline was other than
temporary. Total pre-tax investment write-downs of $9.1 million were
recorded in 2004 to reduce the carrying value of the investment.
During 2004, NU also invested an additional $0.2 million in Acumentrics
debt securities. NU’s investment in Acumentrics, which is included in
receivables on the accompanying consolidated balance sheets, totaled
$0.6 million in debt securities at both December 31, 2005 and 2004.
BMC: In the first quarter of 2004, based on revised information that
negatively impacted undiscounted cash flow projections and fair value
estimates, management determined that the fair value of the note
receivable from BMC had declined and that the note was impaired. As
aresult, management recorded a pre-tax investment write-down of
$2.5 million in the first quarter of 2004. In the second quarter of 2005,
based on additional revised information that negatively impacted the fair
value of the BMC note receivable, management recorded an additional
pre-tax investment write-down of $0.8 million. The remaining note
receivable from BMC, which is included in deferred debits and other
assets – other on the accompanying consolidated balance sheets,
totaled $0.5 million and $1.3 million at December 31, 2005 and 2004,
respectively.
The Acumentrics and BMC investment write-downs are included in
other income, net on the accompanying consolidated statements of
(loss)/income. For further information, see Note 1V, “Summary of
Significant Accounting Policies – Other Income, Net,” to the consolidated
financial statements.
K. Depreciation
The provision for depreciation on utility assets is calculated using the
straight-line method based on the estimated remaining useful lives of
depreciable plant-in-service, which range primarily from 3 years to 75
years, adjusted for salvage value and removal costs, as approved by
the appropriate regulatory agency where applicable. Depreciation rates
are applied to plant-in-service from the time it is placed in service.
When plant is retired from service, the original cost of the plant, including
costs of removal less salvage, is charged to the accumulated provision
for depreciation. Cost of removal is classified as a regulatory liability.
The depreciation rates for the several classes of electric utility plant-in-
service are equivalent to a composite rate of 3.2 percent in 2005, 3.3
percent in 2004, and 3.4 percent in 2003.
NU also maintains other non-utility plant which is being depreciated
using the straight-line method based on their estimated remaining
useful lives, which range primarily from 15 years to 120 years.
L. Jointly Owned Electric Utility Plant
Regional Nuclear Companies: At December 31, 2005, CL&P,PSNH and
WMECO own common stock in three regional nuclear companies
(Yankee Companies). Each of the Yankee Companies owns a single
nuclear generating plant which is being decommissioned. NU’sownership
interests in the Yankee Companies at December 31, 2005, which are
accounted for on the equity method, are49 percent of the Connecticut
Yankee Atomic Power Company (CYAPC), 38.5 percent of the Yankee
Atomic Electric Company (YAEC), and 20 percent of the Maine Yankee
Atomic Power Company (MYAPC). The total carrying value of CYAPC,
MYAPC and YAEC, which is included in deferred debits and other assets
–other on the accompanying consolidated balance sheets and the Utility
Group – electric distribution reportable segment, totaled $28.6 million
at both December 31, 2005 and 2004. Earnings related to these equity
investments are included in other income, net on the accompanying
consolidated statements of (loss)/income. For further information, see
Note 1V,“Summaryof Significant Accounting Policies – Other Income,
Net,” to the consolidated financial statements.