Eversource 2006 Annual Report Download - page 49

NU 2006 ANNUAL REPORT 47
Interest Expense, Net
Interest expense, net decreased $1 million in 2006 primarily due to lower
rate reduction bond interest resulting from lower principal balances
outstanding at CL&P, PSNH and WMECO, partially offset by higher
interest from the issuance of CL&P long-term debt of $250 million in
June of 2006 and from the issuance of Utility Group long-term debt of
$350 million in 2005.
Other Income, Net
Other income, net increased $10 million in 2006 primarily due to a net
decrease in non-competitive investment write-downs ($7 million), higher
investment income ($6 million), CL&P Energy Independence Act (EIA)
incentives ($5 million) and a $3 million gain associated with the sale of
2.7 million shares of Globix. These increases are partially offset by
alower CL&P procurement fee income ($7 million) and the CYAPC
regulatory asset write-off ($3 million).
Income Tax (Benefit)/Expense
Included in the notes to the consolidated financial statements is a
reconciliation of actual and expected tax expense. The tax effect of
temporary differences is accounted for in accordance with the rate-
making treatment of the applicable regulatory commissions. In prior
years, this rate-making treatment has required the company to provide
the customers with a portion of the tax benefits associated with
accelerated tax depreciation in the year it is generated (flow through
depreciation). As these flow through differences turn around, higher
tax expense is recorded.
Income tax benefit decreased $106 million in 2006 due to higher pre-tax
earnings ($175 million) and the regulatory recovery of tax expense
associated with nondeductibleacquisition costs ($11 million); partially
offset by favorable tax adjustments of $74 million to remove UITC and
EDIT deferred tax balances and $6 million related togeneration plant
sold toan affiliate.
Income from Discontinued Operations
NU’sconsolidated statements of income/(loss) for the years ended
December 31, 2006, 2005, and 2004 present the operations for NGC,
Mt. Tom, SESI, Woods Electrical – Services, SECI-NH, and Woods
Network as discontinued operations as a result of meeting the criteria
requiring this presentation. Under this presentation, revenues and
expenses of these businesses are included net of tax in income from
discontinued operations on the consolidated statements of income/
(loss) and all prior periods are reclassified. The 2006 income from
discontinued operations includes the approximately $314 million gain
on the sale of the competitive generation business. See Note 3, “Assets
Held for Sale and Discontinued Operations,” to the consolidated
financial statements for a further description and explanation of the
discontinued operations.
Cumulative Effect of Accounting Change,
Net of Tax Benefit
Acumulative effect of accounting change, net of tax benefit ($1 million)
was recorded in the fourth quarter of 2005 in connection with the
adoption of FIN 47, which required NU to recognize a liability for the
fair value of AROs.
2005 Compared to 2004
Operating Revenues
Operating revenues increased $855 million in 2005 primarily due to
higher Utility Group revenues for both the distribution business
($891 million) and transmission business ($24 million), partially offset
by lower revenues from NU Enterprises ($59 million).
The electric distribution business revenues increased $796 million
primarily due to the components of CL&P, PSNH and WMECO retail
revenues which are included in regulatory commission approved tracking
mechanisms that track the recovery of certain incurred costs ($732
million). The electric distribution revenue tracking components increase
of $732 million is primarilydue tothe passthrough of higher energy
supply costs ($447 million), CL&P FMCC charges ($235 million) and
higher wholesale revenues ($69 million). The tracking mechanisms allow
for rates to be changed periodically with overcollections refunded
to customers or undercollections collected from customers in
futureperiods.
The distribution component of these electric distribution businesses
and the retail transmission component of PSNH which flow through to
earnings increased $65 million primarily due to an increase in retail
rates and an increase in retail sales. Regulated retail sales increased
2.6 percent in 2005 compared with 2004, primarily due to an unseasonably
hot third quarter. On a weather normalized basis, retail sales were
relativelyflat.
The higher gas distribution revenue of $95 million is primarily due to
the recovery of increased gas costs ($80 million) and the effect of the
January 1, 2005 base rate increase ($14 million).
Transmission business revenues increased $24 million primarily due to
the recovery of higher operating expenses in 2005 as allowed under
FERC Tariff Schedule 21, a higher transmission investment base and
the incremental recovery of 2004 expenses.
The NU Enterprises’ revenue decrease of $59 million is primarily due
to lower revenues from the mark-to-market accounting for certain
wholesale contracts related to the business being exited. As a result of
mark-to-market accounting, receipts under those contracts are netted
with expenses to serve those contracts and recorded in fuel, purchased
and net interchange power, resulting in reduced revenues by
approximately $693 million. Additionally, revenues decreased primarily
due tothe wholesalemarketing business ($385 million) and the services
business ($26 million) as a result of lower sales volumes. These
decreases are partially offset by the NU consolidating impact of
eliminating lower intercompany revenues from CL&P and WMECO
($687 million) and higher revenues from the retail marketing business
as a result of higher rates and volumes ($355 million).