Eversource 2013 Annual Report Download - page 59

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issued a Request for Proposal seeking proposals for energy and RECs from private developers for up to 4 percent of the state’s electric
distribution companies’ load (estimated to be between 100 MW to 150 MW) of Class I renewable energy resources for biomass, landfill
gas and run off river hydropower projects from new or existing facilities.
Massachusetts:
On July 24, 2013, Massachusetts enacted a law that changed the income tax rate applicable to utility companies effective January 1,
2014, from 6.5 percent to 8 percent. The tax law change required NU to remeasure its accumulated deferred income taxes and
resulted in NU increasing its deferred tax liability with an offsetting regulatory asset of approximately $61 million at its utility companies.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and, at times,
difficult, subjective or complex judgments. Changes in these estimates, assumptions and judgments, in and of themselves, could
materially impact our financial position, results of operations or cash flows. Our management communicates to and discusses with the
Audit Committee of our Board of Trustees significant matters relating to critical accounting policies. Our critical accounting policies are
discussed below. See the combined notes to our financial statements for further information concerning the accounting policies,
estimates and assumptions used in the preparation of our financial statements.
Regulatory Accounting: The accounting policies of the Regulated companies conform to GAAP applicable to rate-regulated enterprises
and reflect the effects of the rate-making process.
The application of accounting guidance for rate-regulated enterprises results in recording regulatory assets and liabilities. Regulatory
assets represent the deferral of incurred costs that are probable of future recovery in customer rates Regulatory assets are amortized
as the incurred costs are recovered through customer rates. In some cases, we record regulatory assets before approval for recovery
has been received from the applicable regulatory commission. We must use judgment to conclude that costs deferred as regulatory
assets are probable of future recovery. We base our conclusion on certain factors, including, but not limited to, regulatory precedent.
Regulatory liabilities represent revenues received from customers to fund expected costs that have not yet been incurred or probable
future refunds to customers.
We use our best judgment when recording regulatory assets and liabilities; however, regulatory commissions can reach different
conclusions about the recovery of costs, and those conclusions could have a material impact on our financial statements. We believe it
is probable that the Regulated companies will recover the regulatory assets that have been recorded. If we determined that we could
no longer apply the accounting guidance applicable to rate-regulated enterprises to our operations, or that we could not conclude that it
is probable that costs would be recovered from customers in future rates, the costs would be charged to earnings in the period in which
the determination is made.
For further information, see Note 3, "Regulatory Accounting," to the financial statements.
Unbilled Revenues: The determination of retail energy sales to residential, commercial and industrial customers is based on the
reading of meters, which occurs regularly throughout the month. Billed revenues are based on these meter readings and the majority of
recorded annual revenues is based on actual billings. Because customers are billed throughout the month based on pre-determined
cycles rather than on a calendar month basis, an estimate of electricity or natural gas delivered to customers for which the customers
have not yet been billed is calculated as of the balance sheet date.
Unbilled revenues represent an estimate of electricity or natural gas delivered to customers but not yet billed. Unbilled revenues are
included in Operating Revenues on the statement of income and are assets on the balance sheet that are reclassified to Accounts
Receivable in the following month as customers are billed. Such estimates are subject to adjustment when actual meter readings
become available, when there is a change in estimates and under other circumstances.
The Regulated companies estimate unbilled sales monthly using the daily load cycle method. The daily load cycle method allocates
billed sales to the current calendar month based on the daily load for each billing cycle. The billed sales are subtracted from total
month load, net of delivery losses, to estimate unbilled sales. Unbilled revenues are estimated by first allocating unbilled sales to the
respective customer classes, then applying an estimated rate by customer class to those sales. The estimate of unbilled revenues is
sensitive to numerous factors, such as energy demands, weather and changes in the composition of customer classes that can
significantly impact the amount of revenues recorded.
For further information, see Note 1K, "Summary of Significant Accounting Policies - Revenues," to the financial statements.
Pension and PBOP: NUSCO sponsors the NUSCO Pension Plan and NSTAR Electric acts as plan sponsor for the NSTAR Pension
Plan, both of which cover certain of our employees. In addition, our service company sponsors the NUSCO and NSTAR PBOP plans to
provide certain health care benefits, primarily medical and dental, and life insurance benefits to retired employees. For each of these
plans, the development of the benefit obligation, funded status and net periodic benefit cost is based on several significant
assumptions. We evaluate these assumptions at least annually and adjust them as necessary. Changes in these assumptions could
have a material impact on our financial position, results of operations or cash flows.