Eversource 2006 Annual Report Download - page 61

NU 2006 ANNUAL REPORT 59
C. Accounting Standards Issued But Not Yet Adopted
Accounting for Servicing of Financial Assets: In March of 2006, the
Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 156, “Accounting for
Servicing of Financial Assets – An Amendment of FASB Statement
No. 140.” SFAS No. 156 requires an entity to recognize a servicing
asset or liability at fair value each time it undertakes an obligation
to service a financial asset by entering into a servicing contract in a
transfer of the servicer’s financial assets that meets the requirements
for sale accounting and in other circumstances. Servicing assets and
liabilities may be subsequently measured through either amortization
or recognition of fair value changes in earnings. SFAS No. 156 is
required to be applied prospectively to transactions beginning in the
first quarter of 2007. Implementation of SFAS No. 156 will not have
an effect on the company’s consolidated financial statements.
Uncertain Tax Positions: On July 13, 2006, the FASB issued FASB
Interpretation No. (FIN) 48. FIN 48 addresses the methodology to be
used in estimating and reporting amounts associated with uncertain
tax positions, including interest and penalties. FIN 48 is required to be
implemented prospectively in the first quarter of 2007 as a change in
accounting principle with a cumulative effect adjustment reflected in
opening retained earnings. The company is currently evaluating the
potential impact of FIN 48 on its consolidated financial statements.
Fair Value Measurements: On September 15, 2006, the FASB issued
SFAS No. 157, “Fair Value Measurements,” which establishes a
framework for identifying and measuring fair value and is required
to be implemented in the first quarter of 2008. SFAS No. 157 provides
afair value hierarchy, giving the highest priority to quoted prices in
active markets, and is expected to be applied to fair value measurements
of derivative contracts that are subject to mark-to-market accounting
and other assets and liabilities reported at fair value. In most cases,
SFAS No. 157 is required to be implemented prospectively with
adjustments to fair value reflected as a cumulative effect adjustment
to the opening balance of retained earnings as of January 1, 2008.
The company is evaluating the potential impact of SFAS No. 157 on its
consolidated financial statements.
The Fair Value Option: On February 15, 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – including an amendment of FAS 115.” SFAS No. 159 allows
entities to choose, at specified election dates, to measure eligible
financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair
value option for an eligible item, changes in that item’s fair value in
subsequent reporting periods must be recognized in earnings. SFAS
No. 159 is effective for fiscal years beginning after November 15, 2007,
with early adoption permitted subject to specific requirements. The
company is evaluating the measurement options available under the
new standard.
D. Revenues
Utility Group: Utility Group retail revenues are based on rates
approved by the state regulatory commissions. These regulated rates
are applied to customers’ use of energy to calculate a bill. In general,
rates can only be changed through formal proceedings with the state
regulatory commissions. However, certain Utility Group companies
utilize regulatory commission-approved tracking mechanisms to track
the recovery of certain incurred costs. The tracking mechanisms allow
for rates to be changed periodically, with overcollections refunded
to customers or undercollections collected from customers in
future periods.
Utility Group Unbilled Revenues: Unbilled revenues represent an
estimate of electricity or gas delivered to customers that has not
yet been billed. Unbilled revenues are included in revenue on the
statement of income/(loss) and are assets on the balance sheet that
are reclassified to accounts receivable in the following month as
customers are billed. Such estimates are subject to adjustment when
actual meter readings become available, when changes in estimating
methodology occur and under other circumstances.
The Utility Group estimates unbilled revenues monthly using the daily
load cycle (DLC) method. The DLC method allocates billed sales to the
current calendar month based on the daily load for each billing cycle.
The billed sales are subtracted from total calendar month sales to
estimate unbilled sales. Unbilled revenues are estimated by first
allocating sales to the respective rate classes, then applying an
average rate to the estimate of unbilled sales.
Utility Group Transmission Revenues – Wholesale Rates: Wholesale
transmission revenues are based on rates and formulas that are
approved by the FERC. Most of NU’s wholesale transmission revenues
are collected through a combination of NewEngland Independent
System Operator (ISO-NE) FERC Electric Tariff No. 3, Open Access
Transmission Tariff (RNS), and Schedule 21 – NU (LNS) to that tariff.
The RNS tariff is administered by ISO-NE and is billed toall New
England transmission users. RNS recovers the revenue requirements
associated with facilities that are deemed to provide a regional benefit,
or pool transmission facilities. The RNS rateis reset on June 1st of
each year.NU’s LNS rate is reset on January 1st and June 1st of each
year and provides for a true-up to actual costs, which ensures that
NU’stransmission business recovers its total transmission revenue
requirements, including the allowed return on equity (ROE).
Utility Group Transmission Revenues – Retail Rates: Asignificant
portion of the NU transmission business revenue comes from ISO-NE
charges to the distribution businesses of CL&P, PSNH and WMECO.
The distribution businesses recover these costs through the retail
rates that are charged to their retail customers. In 2005, CL&P began
tracking its retail transmission revenues and expenses. WMECO
implemented its retail transmission tracker and rate adjustment
mechanism in January of 2002 as part of its 2002 rate change filing.
PSNH does not currently have a retail transmission rate tracking
mechanism, but the company requested such a mechanism in its 2006
energy delivery rate case. Such a mechanism was also included in
the rate case settlement agreement that PSNH reached with the
New Hampshire Public Utilities Commission (NHPUC) staff and the
Office of Consumer Advocate that was filed with the NHPUC.
NU Enterprises: NU Enterprises’ revenues are recognized at different
times for its different business lines. Up to and including the first
quarter of 2005, wholesale marketing revenues were recognized when
energy was delivered. Subsequent to March 31, 2005, as a result of
applying mark-to-market accounting, these revenues were recorded in
fuel, purchased and net interchange power. This net presentation of
the mark-to-market and settlement amounts is required when
physical delivery of contract quantities is not probable. Service