National Grid 2008 Annual Report Download - page 303

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 25389
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: 97
Description: EXH 2(B).6.1
0/1701.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/701/1*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 25389
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: 97 Description: EXH 2(B).6.1
0/1701.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/701/1*
F-12
interest and equity costs of capital funds used to finance that portion of construction costs not yet eli
g
ible for inclusion in rate
base. AFUDC is capitalized in “Utility plant” with offsetting cash credits to “Other interest” and non-cash credits to “Other
income (deductions), net.” This method is in accordance with an established rate-makin
g
practice under which a utility is
permitted to earn a return on, and the recovery of, prudently incurred capital costs throu
g
h their ultimate inclusion in rate base
and in the provision for depreciation. The composite AFUDC rates were approximately 3.2% and 2.4% for the years ended
March 31, 2007 and 2006, respectively.
9 De
p
reciation and Amortization
Depreciation expense is determined using the straight-line method. The depreciation rates for the re
g
ulated subsidiaries are
based on periodic studies of the estimated useful lives of the assets and the estimated cost to remove them net of salva
g
e
value. The re
g
ulated subsidiaries use composite depreciation rates that are approved by the respective federal and state utility
commissions. The provision for depreciation as a percenta
g
e of wei
g
hted avera
g
e depreciable property (excludin
g
construction work-in-
p
ro
g
ress
)
was 3.03% and 3.04% for the fiscal
y
ears ended March 31, 2007 and 2006, res
p
ectivel
y
.
Re
g
ulatory assets, includin
g
those covered by CTCs, are amortized in accordance with the provisions of the re
g
ulated
subsidiaries’ rate settlement agreements and, therefore, are not necessarily amortized on a straight-line basis. NEP and
Nia
g
ara Mohawk had deferred certain costs related to dere
g
ulation, includin
g
purchased power contract buyouts, and losses
on the sale of generation assets as a regulatory asset (See Note B — “Rates and Regulatory”). Niagara Mohawk’s costs are
bein
g
amortized unevenly over ten years with lar
g
er amounts bein
g
amortized in the latter years, consistent with projected
recover
y
throu
g
h rates.
10 Cash Equivalents
The Com
p
an
y
classifies short-term investments with an ori
g
inal maturit
y
of three months or less as cash e
q
uivalents.
11 Restricted Cash
Restricted cash consists of mar
g
in accounts for commodity and interest rate hed
g
in
g
activity, health care claims deposits, New
York State Department of Conservation securitization for certain site cleanup, and workers’ compensation premium deposits.
Under the Loan and Trust A
g
reement for the Massachusetts Development Finance A
g
ency Tax Exempt Electric Utility
Revenue Bonds (Nantucket Electric Company Issue), Series 2004A (the Bonds), the Company established a Construction
Fund with the Trustee in which the proceeds from the Bonds were deposited. In total, $38 million was deposited to fund the
Second Nantucket Cable Project costs. Disbursements from the Construction Fund may be made by the Trustee to pay
directly or to reimburse the Company for eli
g
ible project costs as directed by requisitions si
g
ned by the Company. This
requisition process is the only manner in which project costs may be paid from Bond proceeds. As of March 31, 2007, the
Company used the entire $38 million of the funds deposited. The project was completed at the be
g
innin
g
of the 2007 fiscal
y
ear.
12 Federal and State Income Taxes
Federal and state income taxes are recorded under the provisions of SFAS No. 109 “Accounting for Income Taxes.” Income
taxes have been computed utilizin
g
the asset and liability approach, which requires the reco
g
nition of deferred tax assets and
liabilities for the tax consequences of temporary differences. It does this by applyin
g
enacted statutory tax rates applicable to
future years to differences between the financial statement carryin
g
amounts and the tax basis of existin
g
assets and liabilities.