Eversource 2006 Annual Report Download - page 65

NU 2006 ANNUAL REPORT 63
Other Regulatory Liabilities: At December 31, 2006 and 2005, other
regulatory liabilities included $22.5 million and $25 million, respectively,
of prepaid pension amounts related to the purchase of Yankee Gas in
March of 2000, and $25.6 million and $6.7 million, respectively, primarily
related to transmission refunds to be provided to customers as a result
of the FERC ROE decision, $18.3 million at December 31, 2006 related
toPSNH’s energy service overcollections and $49.4 million and
$87.8 million related to various other items at December 31, 2006
and 2005, respectively.
G. Income Taxes
The tax effect of temporary differences (differences between the
periods in which transactions affect income in the financial statements
and the periods in which they affect the determination of taxable
income) is accounted for in accordance with the rate-making treatment
of the applicable regulatory commissions and SFAS No. 109. Details
of income tax (benefit)/expense related to continuing operations are
as follows:
For the Years Ended December 31,
(Millions of Dollars) 2006 2005 2004
The components of the federal and
state income tax provisions are:
Current income taxes:
Federal $55.9 $19.9 $(58.6)
State (20.5) 6.4 (8.7)
Total current 35.4 26.3 (67.3)
Deferred income taxes, net:
Federal (49.5) (159.8) 102.0
State (4.3) (50.6) (9.1)
Total deferred (53.8) (210.4) 92.9
Investment tax credits, net (63.0) (3.7) (3.8)
Income tax (benefit)/expense $(81.4) $(187.8) $ 21.8
A reconciliation between income tax (benefit)/expense and the
expected tax (benefit)/expense at the statutory rate is as follows:
Expected federal income tax
expense/(benefit) $17.6 $(157.1) $34.0
Tax effect of differences:
Depreciation (4.0) (3.5) 5.8
Amortization of regulatory assets 13.3 1.8 1.8
Investment tax credit amortization
(including $59.3 million related
tothe PLR) (63.0) (3.7) (3.8)
State income taxes,
net of federal benefit (17.8) (47.8) (9.6)
Excess deferred income taxes – PLR (14.7) ——
Deferred tax adjustment –
sale to affiliate (6.0) ——
Medicare subsidy (5.5) (6.0) (1.0)
Tax asset valuation allowance/
reserve adjustments 1.3 18.5 1.9
Other, net (2.6) 10.0 (7.3)
Income tax (benefit)/expense $(81.4) $(187.8) $ 21.8
NU and its subsidiaries file a consolidated federal income tax return
and 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 separate company tax return, and
subsidiaries generating tax losses are paid for their losses when utilized.
In 2000, CL&P requested from the Internal Revenue Service (IRS) a
Private Letter Ruling (PLR) regarding the treatment of unamortized
investment tax credits (UITC) and excess deferred income taxes (EDIT)
related to generation assets that were sold. On April 18, 2006, the IRS
issued a PLR to CL&P regarding the treatment of UITC and EDIT. EDIT
are temporary differences between book and taxable income that were
recorded when the federal statutory tax rate was higher than it is now
or when those differences were expected to be resolved. The PLR
holds that it would be a violation of tax regulations if the EDIT or UITC
are used to reduce customers’ rates following the sale of the generation
assets. CL&P’s UITC and EDIT balances related to generation assets
that have been sold totaled $59 million and $15 million, respectively,
and $74 million combined. CL&P was ordered by the DPUC to submit
the PLR to the DPUC within 10 days of issuance and retain the UITC
and EDIT in their existing accounts pending its receipt and review of
the PLR. On July 27, 2006, the DPUC determined that the UITC and
EDIT amounts were no longer required to be held in their existing
accounts. As a result of this determination, the $74 million balance
was reflected as a reduction to CL&P’s 2006 income tax expense with
an increase to CL&P’s earnings by the same amount.
Included in 2006 amortization of regulatory assets above is $13 million
associated with the restructuring settlement. In accordance with the
provisions of the restructuring settlement, pre-tax amortization of
PSNH non-deductible acquisition costs increased $32 million as
compared to 2005 and 2004.
The tax effects of temporary differences that giverise to the current
and long-term net accumulated deferred tax obligations are as follows:
AtDecember 31,
(Millions of Dollars) 2006 2005
Deferred tax liabilities – current:
Change in fair value of energy contracts $ 18.0 $ 7.3
Other 42.0 35.6
Total deferred tax liabilities – current 60.0 42.9
Deferred tax assets – current:
Change in fair value of energy contracts 17.3 50.7
Other 26.5 15.9
Total deferred tax assets – current 43.8 66.6
Net deferred tax liabilities/(assets) – current 16.2 (23.7)
Deferred tax liabilities – long-term:
Accelerated depreciation and other
plant-related differences 931.0 1,120.7
Employee benefits 126.7 165.0
Regulatory amounts:
Securitized contract termination
costs and other 200.3 223.6
Other 238.1 159.2
Income tax gross-up 202.4 215.1
Derivative assets 99.5 —
Other 39.5 80.1
Total deferred tax liabilities – long-term 1,837.5 1,963.7
Deferred tax assets – long-term:
Regulatory deferrals 267.9 365.8
Employee benefits 308.0 112.0
Income tax gross-up 39.3 34.0
Other 146.4 175.4
Total deferred tax assets – long-term 761.6 687.2
Less: valuation allowance 23.5 29.8
Net deferred tax assets – long-term 738.1 657.4
Net deferred tax liabilities – long-term 1,099.4 1,306.3
Net deferred tax liabilities $1,115.6 $1,282.6
At December 31, 2006, NU had statenet operating loss carry forwards
of $350 million that expirebetween December 31, 2008 and December 31,
2026. At December 31, 2006, NU also had state credit carry forwards of
$32.8 million that expire on December 31, 2011.