Eversource 2009 Annual Report Download - page 72

63
Maintenance
Maintenance expenses increased $2 million in 2008 due primarily to vegetation management expenses as a result of storms.
Amortization of Regulatory (Liabilities)/Assets, Net
Amortization of regulatory (liabilities)/assets, net expenses increased $2 million in 2008 due primarily to the deferral of transition
revenues collected in excess of allowed transition costs resulting mainly from higher power contract market values.
Amortization of Rate Reduction Bonds
Amortization of RRBs expenses increased $1 million in 2008, which corresponded to the reduction in principal of the RRBs.
Other Income, Net
Other income, net decreased $2 million in 2008 due primarily to higher investment losses ($2 million) due primarily to the NU
supplemental benefit trust and lower investment income ($2 million), partially offset by higher interest income related to the federal tax
settlement in 2008 ($1 million) and higher AFUDC equity income as a result of a higher eligible CWIP and lower short-term debt
resulting in an increase in CWIP financed by equity ($1 million).
Income Tax Expense/(Benefit)
Income tax expense decreased $4 million in 2008 due primarily to lower pre-tax earnings.
LIQUIDITY
WMECO had cash flows provided by operating activities in 2009 of $47.7 million, compared with operating cash flows of $53.9 million in
2008 and $24.9 million in 2007, all amounts are net of RRB payments included in financing activities. The decrease in 2009 cash flows
was due to an increase of $41.6 million in the negative cash flow effect of accounts payable balances partially as a result of costs
related to the major storm in December 2008 that were paid to vendors in 2009. These costs were deferred and are expected to be
recovered from customers. WMECO anticipates filing a distribution rate case in mid-2010, which would include a request for the timely
recovery of the December 2008 storm costs. This impact was offset by a decrease in the negative cash flow from various other working
capital items, such as accounts receivable and unbilled revenues of $18 million, and improved operating results.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Information
Commodity Price Risk Management: Our regulated companies enter into energy contracts to serve our customers and the economic
impacts of those contracts are passed on to our customers. Accordingly, the regulated companies have no exposure to loss of future
earnings or fair values due to these market risk-sensitive instruments, and the sensitivity analyses below do not include these contracts.
The wholesale portfolio held by Select Energy includes contracts that are market-risk sensitive, including a wholesale energy sales
contract with NYMPA through 2013 with approximately 0.4 million remaining MWh of supply contract volumes, net of related sales
volumes. Select Energy also has a non-derivative energy contract that expires in mid-2012 to purchase output from a generation
facility, which is less exposed to market price volatility and is not included in the sensitivity analysis below. As Select Energy's contract
volumes are winding down, and as the NYMPA contract is substantially hedged against price risks, we have limited exposure to
commodity price risks. We have no energy contracts entered into for trading purposes.
For Select Energy's wholesale energy portfolio derivatives, we utilize the sensitivity analysis methodology to disclose quantitative
information for our commodity price risks (including, where applicable, capacity and ancillary components). Sensitivity analysis provides
a presentation of the potential loss of future pre-tax earnings and fair values from our market risk-sensitive contracts due to one or more
hypothetical changes in commodity price components, or other similar price changes. Under the sensitivity analysis, the fair value of
the derivatives is a function of the underlying commodity components, contract prices and market prices represented by each derivative
contract. For swaps, forward contracts and options, fair value reflects our best estimates considering over-the-counter quotations, time
value and volatility factors of the underlying commitments. Exchange-traded futures and options are recorded at fair value based on
closing exchange prices. A portion of the fair value of the NYMPA contract is based on a model.
Select Energy's Wholesale Portfolio: When conducting sensitivity analyses of the change in the fair value of the wholesale energy
portfolio, which includes several derivative contracts, which would result from a hypothetical change in the future market price of
electricity, the fair values of the energy contracts are determined from models that take into consideration estimated future market
prices of electricity, the volatility of the market prices in each period, as well as the time value factors of the underlying commitments.
Hypothetical changes in the fair value of derivative contracts in the wholesale portfolio were determined using a 30 percent assumed
change in forward market prices. As of December 31, 2009, we determined the following hypothetical changes and calculated the
nominal adjusted impact on pre-tax earnings: