National Grid 2008 Annual Report Download - page 302

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 31963
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 96
Description: EXH 2(B).6.1
0/2700.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/700/2*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 31963
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 96 Description: EXH 2(B).6.1
0/2700.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/700/2*
F-11
Mohawk files reports with the Securities and Exchan
g
e Commission (SEC) under the Securities Exchan
g
e Act of 1934, as
amended.
5 Goodwill
National Grid plc’s acquisitions of the Company’s subsidiaries includin
g
the acquisitions by the Company of Eastern Utilities
Associates (EUA), Niagara Mohawk, and the Rhode Island gas assets of New England Gas Company (see Note L –
“Acquisitions”), were accounted for by the purchase method, the application of which includes the reco
g
nition of
g
oodwill.
Goodwill was approximately $3.3 billion and $3.1 billion at March 31, 2007 and 2006, respectively. In accordance with the
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and
Other Intangible Assets,” the Company reviews its
g
oodwill annually for impairment and when events or circumstances indicate
that the asset may be impaired. The Company utilized a discounted cash flow approach incorporatin
g
its most recent business
plan forecasts in the performance of the annual
g
oodwill impairment test. Durin
g
fiscal year 2007,
g
oodwill increased by
approximately $262 million. This amount primarily related to (i) an increase to Narra
g
ansett
g
oodwill of $236 million due to the
acquisition of the Rhode Island
g
as assets from Southern Union Company and (ii) an increase to Nia
g
ara Mohawk of
$26 million due to an adjustment related to a tax contingency. Included in ‘Assets of discontinued operations’ is a decrease of
$94 million of goodwill composed of a $26 million increase related to acquisitions offset by a $120 million write-down due to
im
p
airment of
g
oodwill.
6 Electric and Gas Utility Revenue
The Company’s re
g
ulated subsidiaries char
g
e customers for electric and
g
as service in accordance with rates approved by the
FERC and the applicable state regulatory commissions.
All of the Company’s distribution subsidiaries, except for Granite State Electric, follow the policy of accruin
g
the estimated
amount of base rate revenues for electricity delivered but not yet billed (unbilled revenues), to match costs and revenues. The
unbilled revenue included in accounts receivable at March 31, 2007 and 2006 was approximately $351 million and $291 million,
respectively. The distribution subsidiaries record revenues in amounts mana
g
ement believes to be recoverable pursuant to
provisions of approved settlement a
g
reements and state le
g
islation. The distribution subsidiaries normalize the difference
between revenue and expenses from ener
g
y conservation pro
g
rams, commodity purchases, transmission service and contract
termination charges (CTCs).
The Company recognizes changes in unbilled revenues in its results of operations with the exception of Niagara Mohawk’s
unbilled gas revenue. Pursuant to Niagara Mohawk’s 2000 multi-year
g
as settlement (which ended December 2004, and
remains effective until Nia
g
ara Mohawk requests a chan
g
e in rates), chan
g
es in accrued unbilled
g
as revenues are deferred. At
March 31, 2007 and 2006, approximately $18 million and $6 million, respectively, of unbilled
g
as revenues remain
unreco
g
nized in results of operations. Mana
g
ement cannot predict when unbilled
g
as revenues will be allowed to be reco
g
nized
in results of operations.
7 Utilit
y
Plant
The cost of additions to utility plant and replacements of retired units of property are capitalized. Costs include direct material,
labor, overhead and allowance for funds used durin
g
construction (AFUDC) (see below). Replacement of minor items of utility
plant and the cost of current repairs and maintenance are char
g
ed to expense. Whenever utility plant is retired, its ori
g
inal cost,
to
g
ether with the cost of removal, less salva
g
e, is char
g
ed to accumulated de
p
reciation.
8 AFUDC
The Company capitalizes AFUDC as part of construction costs in amounts equivalent to the cost of funds devoted to plant
under construction for its regulated businesses. AFUDC represents the composite