Eversource 2002 Annual Report Download - page 47

have been recorded as recoverable energy costs, net. On July 26, 2001,
the Connecticut Department of Public Utility Control (DPUC) authorized
CL&P to assess a charge of approximately $0.002 per kilowatt-hour
(kWh) from August 2001 through December 2003 to collect these costs.
In conjunction with the implementation of restructuring under the
Restructuring Settlement on May 1, 2001, PSNH’s fuel and purchased-
power adjustment clause (FPPAC) was discontinued. At December 31,
2002 and 2001, PSNH had $179.6 million and $183.3 million, respectively,
of recoverable energy costs deferred under the FPPAC, including previous
deferrals of purchases from independent power producers. Under the
Restructuring Settlement, the FPPAC deferrals are recovered as a Part 3
stranded cost through a stranded cost recovery charge. Also included
in PSNH’s recoverable energy costs are costs associated with certain
contractual purchases from independent power producers that had
previously been included in the FPPAC. These costs are treated as Part 3
stranded costs and amounted to $62.1 million and $68.1 million at
December 31, 2002 and 2001, respectively.
The regulated rates of Yankee Gas include a purchased gas adjustment
clause under which gas costs above or below base rate levels are
charged to or credited to customers. Differences between the actual
purchased gas costs and the current rate recovery are deferred and
recovered in or refunded in future periods. These amounts are recorded
as recoverable energy costs, net.
H. Income Taxes
The tax effect of temporary differences (differences between the periods
in which transactions affect income in the financial statements and the
periods in which they affect the determination of taxable income) is
accounted for in accordance with the rate-making treatment of the
applicable regulatory commissions and SFAS No. 109, “Accounting for
Income Taxes.”
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, that give rise
to the accumulated deferred tax obligation is as follows:
At December 31,
(Millions of Dollars) 2002 2001
Accelerated depreciation and
other plant-related differences $493.7 $577.5
Regulatory assets:
Nuclear stranded investment
and other asset divestitures 270.9 324.6
Securitized contract termination
costs and other 255.4 279.7
Income tax gross-up 194.6 190.0
Other 221.9 119.6
Totals $1,436.5 $1,491.4
I. Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term cash
investments which are highly liquid in nature and have original maturities
of three months or less.
J. Accounting for Competitive Energy Contracts
The accounting treatment for energy contracts entered into by Select
Energy varies between contracts and depends on the intended use of
the particular contract and on whether or not the contracts are derivatives.
Nonderivative contracts that are entered into for the normal purchase
or sale of energy to customers that will result in physical delivery are
recorded at the point of delivery under accrual accounting. Derivative
contracts that are entered into for the normal purchase and sale of
energy and meet the “normal purchase and sale” exception to derivative
accounting, as defined in SFAS No. 133, are also recorded at the point
of delivery under accrual accounting.
Derivative contracts that are entered into for trading purposes are
recorded on the consolidated balance sheets at fair value, and changes
in fair value impact earnings. Revenues and expenses for these contracts
are recorded on a net basis. Other contracts that are derivatives that do
not qualify as normal purchases and sales or hedges are also recorded
on the consolidated balance sheets at fair value with changes in fair
value reflected in operating revenues for sales and fuel, purchased and
net interchange power for purchases.
Revenues and expenses for derivative contracts that are not entered
into for trading purposes are recorded at gross amounts when these
transactions settle.
Competitive energy contracts that are hedging an underlying transaction
and qualify as cash flow hedges are recorded on the consolidated balance
sheets at fair value with changes in fair value generally reflected in
other comprehensive income. Hedges impact earnings when the forecasted
transaction being hedged occurs, when hedge ineffectiveness is measured
and recorded, when the forecasted transaction being hedged is no
longer probable of occurring, or when there is an accumulated other
comprehensive loss and when the hedge and the forecasted transaction
being hedged are in a loss position on a combined basis.
For further information regarding accounting for competitive energy
contracts, see Note 3, “Derivative Instruments, Market Risk and Risk
Management,” to the consolidated financial statements.
K. Stock-Based Compensation
At December 31, 2002, NU maintains an Employee Stock Purchase
Plan (ESPP) and other long-term incentive plans which are described
more fully in Note 4D, “Employee Benefits – Stock-Based Compensation”
to the consolidated financial statements. NU accounts for these plans
under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations. No stock-based employee
compensation cost for stock options is reflected in net income, as all
options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings
per share (EPS) if NU had applied the fair value recognition provisions
of SFAS No. 123 to stock-based employee compensation.
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