Eversource 2006 Annual Report Download - page 75

NU 2006 ANNUAL REPORT 73
CL&P has entered into Financial Transmission Rights (FTR) contracts
to limit the congestion costs associated with its TSO contracts. An
offsetting regulatory asset has been recorded as this contract is part
of the stranded costs, and management believes that these costs will
be recovered in rates. At December 31, 2006, the fair value of these
contracts is recorded as a derivative asset of $4.9 million and a
derivative liability of $0.4 million on the accompanying consolidated
balance sheets. The fair value of CL&P’s FTRs at December 31, 2005
was equal to the value when acquired as there were no changes in fair
value of the FTRs through December 31, 2005.
PSNH has a contract to purchase oil that no longer qualifies for the
normal purchase and sale exception due to offsetting sales of oil in
2006. This contract is a non-trading derivative at December 31, 2006,
the fair value of which is calculated based on market prices and is
recorded as a derivative liability of $10.8 million. An offsetting
regulatory asset was recorded as management believes that this
cost will be recovered in rates through a deferral mechanism that
tracks generation revenues and costs.
PSNH has electricity procurement contracts that management
determined no longer qualify for the normal purchase and sale
exception due to 2006 quantities being sold into the energy market.
These contracts arenon-trading derivatives at December 31, 2006,
the fair value of which is calculated based on market prices and is
recorded as a derivative liability of $28.4 million. An offsetting
regulatory asset was recorded as management believes that these
costs will be recovered in rates as the energy is delivered.
NU Parent – Hedging: In March of 2003, tomanage the interest rate
characteristics of the company’s long-term debt, NU Parent entered
into a fixed tofloating interest rate swap on its $263 million, 7.25 percent
fixed rate note that matures on April 1, 2012. Under fair value hedge
accounting, the changes in fair value of the swap and the hedged debt
instrument are recorded in interest expense. The cumulative changes
in the fair value of the swap and the debt are recorded as derivative
liabilities and decreases to long-term debt of $6.5 million at December 31,
2006 and $5.2 million at December 31, 2005.
6. Employee Benefits
A.Pension Benefits and Postretirement Benefits
Other Than Pensions
On December 31, 2006, NU implemented SFAS No. 158, which amends
SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88,
“Employers’ Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits,” SFAS No. 106,
“Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” and SFAS No. 132(R), “Employers’ Disclosures about
Pensions and Other Postretirement Benefits.” SFAS No. 158 applies to
NU’s Pension Plan, SERP, and PBOP Plan and required NU to record
the funded status of these plans based on the projected benefit
obligation (PBO) for the Pension Plan and accumulated postretirement
benefit obligation (APBO) for the PBOP Plan on the consolidated
balance sheet at December 31, 2006. Previously, the prepaid or
accrued benefit obligation was recorded in accordance with SFAS
No. 87 and SFAS No. 106, which allowed for the deferral of certain
items, and reconciliation to the funded status was provided in the
footnotes to financial statements. These deferred items included the
transition obligation, prior service costs, and net actuarial loss.
SFAS No. 158 requires the additional liability to be recorded with an
offset to accumulated other comprehensive income in shareholders’
equity. NU recorded an after-tax charge totaling $4.4 million to
accumulated other comprehensive income related to the impact of
SFAS No. 158 on NU’s unregulated subsidiaries. However, because the
Utility Group companies are cost-of-service rate regulated entities
under SFAS No. 71, regulatory assets were recorded in the amount
of $407.4 million, as these amounts in benefits expense have been and
continue to be recoverable in cost-of-service, regulated rates. Regulatory
accounting was also applied to the portions of the NUSCO costs that
support the Utility Group, as these amounts are also recoverable.
Pension Benefits: NU’s subsidiaries participate in a uniform
noncontributory defined benefit retirement plan (Pension Plan)
covering substantially all regular NU employees. Benefits are based
on years of service and the employees’ highest eligible compensation
during 60 consecutive months of employment. NU uses a December 31st
measurement date for the Pension Plan. Pension expense attributable
to earnings is as follows:
For the Years Ended December 31,
(Millions of Dollars) 2006 2005 2004
Total pension expense $50.2 $54.2 $ 8.0
Amount capitalized as utility plant (11.5) (11.5) 2.6
Total pension expense,
net of amounts capitalized $38.7 $42.7 $10.6
Total pension expense above includes pension curtailments and
termination benefits benefit of $2.5 million in 2006, expense of
$11.7 million in 2005, and expense of $2.1 million in 2004.
Pension Curtailments and Termination Benefits: In December of
2005, a new program was approved providing a benefit for certain
employees hired on and after January 1, 2006 providing for these
employees to receive retirement benefits under a new 401(k) benefit
(K-Vantage Plan) rather than under the Pension Plan. The approval of
the new plan resulted in the recording of an estimated pre-capitalization,
pre-tax curtailment expense of $6.2 million in 2005, as a certain number
of employees hired before that date were expected to elect the new 401(k)
benefit as permitted, resulting in a reduction in aggregate estimated
future years of service under the Pension Plan. Management estimated
the amount of the curtailment expense associated with this change
based upon actuarial calculations and certain assumptions, including
the expected level of transfers to the new 401(k) benefit. Because the
predicted level of elections of the new benefit did not occur, NU
recorded a pre-capitalization, pre-tax reduction in the curtailment
expense of $3.6 million in 2006.
In addition, as a result of its corporate reorganization, NU estimated
and recorded a combined pre-capitalization, pre-tax curtailment
expense and related termination benefits for the Pension Plan totaling
$5.5 million in 2005. Refinements to this estimate resulted in a
combined pre-capitalization, pre-tax increase in the curtailment
expense and termination benefits of $1.1 million in 2006.
In 2004, as a result of litigation with nineteen former employees, NU
was ordered by the court to modify its Pension Plan to include special
retirement benefits for fifteen of these former employees retroactive
to the dates of their retirement and provide increased future monthly
benefit payments. NU recorded $2.1 million in termination benefits
related to this litigation in 2004 and made a lump sum benefit payment
totaling $1.5 million to these former employees.