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74
Pro forma net income does not include potential cost savings associated with the merger. Pro forma net income also excludes certain
non-recurring merger costs and costs related to the Connecticut and Massachusetts merger settlement agreements described below,
with the following aggregate after-tax impacts:
For the Years Ended December 31,
(Millions of Dollars)
2012
2011
Transaction and Other Costs
$
32
$
19
Settlement Agreement Impacts
60
-
Total After-Tax Non-Recurring Costs Excluded from
Pro Forma Net Income Attributable to Controlling Interest
$
92
$
19
Regulatory Approvals: On February 15, 2012, NU and NSTAR reached comprehensive merger settlement agreements with the
Massachusetts Attorney General and the DOER. The Attorney General settlement agreement covered a variety of rate-making and
rate design issues, including a base distribution rate freeze through 2015 for NSTAR Electric, NSTAR Gas and WMECO and $15
million, $3 million and $3 million in the form of rate credits to their respective customers. The settlement agreement reached with the
DOER covered the same rate-making and rate design issues as the Attorney General's settlement agreement, as well as a variety of
matters impacting the advancement of Massachusetts clean energy policy established by the Green Communities Act and Global
Warming Solutions Act. On April 4, 2012, the DPU approved the settlement agreements and the merger of NU and NSTAR.
On March 13, 2012, NU and NSTAR reached a comprehensive merger settlement agreement with both the Connecticut Attorney
General and the Connecticut Office of Consumer Counsel. The settlement agreement covered a variety of matters, including a $25
million rate credit to CL&P customers, a CL&P base distribution rate freeze until December 1, 2014, and the establishment of a $15
million fund for energy efficiency and other initiatives to be disbursed at the direction of the DEEP. In the agreement, CL&P agreed to
forego rate recovery of $40 million of the deferred storm restoration costs associated with restoration activities following Tropical Storm
Irene and the October 2011 snowstorm. On April 2, 2012, the PURA approved the settlement agreement and the merger of NU and
NSTAR.
The pre-tax financial impacts of the Connecticut and Massachusetts merger settlement agreements that were recognized in 2012 by
NU, CL&P, NSTAR Electric, and WMECO are summarized as follows:
(Millions of Dollars)
NU
CL&P
NSTAR Electric
WMECO
Customer Rate Credits
$
46
$
25
$
15
$
3
Storm Costs Deferral Reduction
40
40
-
-
Establishment of Energy Efficiency Fund
15
-
-
-
Total Pre-Tax Settlement Agreement Impacts
$
101
$
65
$
15
$
3
Goodwill: In accordance with the accounting standards, goodwill is not subject to amortization. However, goodwill is subject to fair
value-based rules for measuring impairment, and resulting write-downs, if any, are charged to Operating Expenses. These accounting
standards require that goodwill be reviewed at least annually for impairment and whenever facts or circumstances indicate that there
may be an impairment. NU uses October 1st as the annual goodwill impairment testing date.
On April 10, 2012, upon consummation of the merger with NSTAR, NU recorded approximately $3.2 billion of goodwill. With the
completion of the merger, NU reviewed its management structure and determined that the reporting units for the purpose of testing
goodwill for impairment are Electric Distribution, Electric Transmission and Natural Gas Distribution. NU's reporting units are consistent
with the operating segments underlying the reportable segments identified in Note 21, "Segment Information," to the financial
statements. Accordingly, the goodwill resulting from the merger was allocated to the Electric Distribution, Electric Transmission and
Natural Gas Distribution reporting units based on the estimated fair values of the reporting units as of the merger date.
Prior to the merger with NSTAR, the only reporting unit that maintained goodwill was the Natural Gas Distribution reportable segment
related to the acquisition of the parent of Yankee Gas in 2000. This goodwill was recorded at Yankee Gas. The goodwill balance at
Yankee Gas as of December 31, 2013 and 2012 was $0.3 billion.
NU completed its annual goodwill impairment test for each of its reporting units as of October 1, 2013 and determined that no
impairment exists. There were no events subsequent to October 1, 2013 that indicated impairment of goodwill.
The allocation of goodwill to NU's reporting units was as follows:
(Billions of Dollars)
Electric
Electric
Natural Gas
Distribution
Transmission
Distribution
Total
Balance as of December 31, 2011
$
-
$
-
$
0.3
$
0.3
Merger with NSTAR
2.5
0.6
0.1
3.2
Balance as of December 31, 2012
$
2.5
$
0.6
$
0.4
$
3.5
There were no changes to the goodwill balance or the allocation of goodwill for the year ended December 31, 2013.