Eversource 2009 Annual Report Download - page 129

FS-44
L. Allowance for Funds Used During Construction
Allowance for funds used during construction (AFUDC) is included in the cost of the regulated companies' utility plant and represents
the cost of borrowed and equity funds used to finance construction. The portion of AFUDC attributable to borrowed funds is recorded
as a reduction of Other interest expense and the AFUDC related to equity funds is recorded as Other income, net on the accompanying
consolidated statements of income.
For the Years Ended December 31,
NU
(Millions of Dollars, except percentages) 2009 2008 2007
AFUDC:
Borrowed funds $ 5.9 $ 17.8 $ 17.5
Equity funds 9.4 29.0 17.4
Totals $ 15.3 $ 46.8 $ 34.9
Average AFUDC rates 6.1 % 8.1 % 7.6 %
For the Years Ended December 31,
2009 2008 2007
(Millions of Dollars, except percentages) CL&P PSNH WMECO CL&P PSNH WMECO CL&P PSNH WMECO
AFUDC:
Borrowed funds $ 2.2 $ 3.1 $ 0.2 $ 13.0 $ 3.0 $ 1.0 $ 10.9 $ 3.0 $ 1.0
Equity funds 5.7 3.6 - 23.2 4.4 1.2 14.2 2.0 0.2
Totals $ 7.9 $ 6.7 $ 0.2 $ 36.2 $ 7.4 $ 2.2 $ 25.1 $ 5.0 $ 1.2
Average AFUDC rates 7.2% 6.2% 1.7% 8.4% 7.9% 7.6% 8.0% 7.0% 6.1%
The regulated companies' average AFUDC rate is based on a FERC-prescribed formula that produces an average rate using the cost
of a company's short-term financings as well as a company's capitalization (preferred stock, long-term debt and common equity). The
average rate is applied to average eligible CWIP amounts to calculate AFUDC. AFUDC is recorded on 100 percent of CL&P's and
WMECO's CWIP for their NEEWS projects, all of which is being reserved as a regulatory liability to reflect current rate base recovery for
100 percent of the CWIP as a result of FERC-approved transmission incentives. For the years ended December 31, 2008 and 2007, 50
percent of AFUDC related to other major transmission projects at CL&P were being reserved as a regulatory liability to reflect current
rate base recovery for 50 percent of the CWIP as a result of FERC-approved transmission incentives.
M. Asset Retirement Obligations
In accordance with accounting guidance for conditional AROs, NU, including CL&P, PSNH and WMECO, recognizes a liability for the
fair value of an ARO on the obligation date if the liability's fair value can be reasonably estimated and is conditional on a future event.
The guidance provides that settlement dates and future costs should be reasonably estimated when sufficient information becomes
available and provides direction on the definition and timing of sufficient information in determining expected cash flows and fair values.
Management has identified various categories of AROs, primarily certain assets containing asbestos and hazardous contamination. A
fair value calculation, reflecting expected probabilities for settlement scenarios, has been performed.
The fair value of an ARO is recorded as a liability in Deferred credits and other liabilities - other with an offset included in Property, plant
and equipment, net on the accompanying consolidated balance sheets. The ARO assets are depreciated, and the ARO liabilities are
accreted over the estimated life of the obligation with corresponding credits recorded as accumulated depreciation and ARO liabilities,
respectively. Both the depreciation and accretion were recorded as increases to Regulatory assets on the accompanying consolidated
balance sheets as of December 31, 2009 and 2008.
As the regulated companies are cost-of-service, rate-regulated entities, these companies apply regulatory accounting guidance and the
costs associated with the regulated companies' AROs were included in other regulatory assets as of December 31, 2009 and 2008.
The following tables present the ARO asset, the related accumulated depreciation, the regulatory asset, and the ARO liabilities as of
December 31, 2009 and 2008:
NU As of December 31, 2009
(Millions of Dollars) ARO Asset
Accumulated
Depreciation of
ARO Asset
Regulatory
Asset
ARO
Liabilities
Asbestos $ 2.7 $(1.7) $21.8 $ (23.9)
Hazardous contamination 4.9 (1.4) 16.2 (20.2)
Other AROs 2.6 (1.2) 4.9 (6.5)
Total AROs $ 10.2 $(4.3) $42.9 $ (50.6)