Eversource 2008 Annual Report Download - page 54

NU’s consolidated statements of income for the years
ended December 31, 2007 and 2006 classify the following
as discontinued operations:
• Northeast Generation Company (NGC), including
certain components of NGS,
• The Mt. Tom generating plant (Mt. Tom) previously
owned by HWP,
• Select Energy Services, Inc. (SESI) and its wholly-
owned subsidiaries HEC/Tobyhanna Energy Project,
Inc. and HEC/CJTS Energy Center LLC,
• A portion of the former Woods Electrical Co., Inc.
(Woods Electrical), and
• SECI (including Reeds Ferry Supply Co., Inc.).
For further information regarding discontinued
operations, see Note 14, “Restructuring and Impairment
Charges and Discontinued Operations,” to the
consolidated financial statements.
C. Accounting Standards Issued But Not Yet Adopted
In December 2007, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 160, “Noncontrolling Interests
in Consolidated Financial Statements,” which is
eective January 1, 2009. SFAS No. 160 requires
ownership interests in subsidiaries held by third parties
(noncontrolling interests) to be presented within
equity and clearly identified and labeled. It sets forth
requirements for income statement presentation
related to the activities of noncontrolling interests and
for accounting for changes in ownership interests and
provides guidance for deconsolidation. Implementation
of SFAS No. 160 is not expected to have a material impact
on the company’s consolidated financial statements.
In June 2008, the FASB issued FASB Sta Position (FSP)
EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating
Securities,” which is eective January 1, 2009 and is
required to be applied retrospectively. As a result of this
FSP, NU’s restricted stock awards that were not vested
in 2007 and the first quarter of 2008 are considered
participating securities in calculating earnings per share
(EPS) for these periods using the two-class method.
NU’s restricted stock awards were completely vested
during the first quarter of 2008 and are no longer
awarded. FSP EITF 03-6-1 is not expected to impact
NU’s EPS for any period.
SFAS No. 157, “Fair Value Measurements,” which
establishes a framework for identifying and measuring
fair value, was issued in 2006 and applied in 2008 to
the fair value measurements of financial assets and
liabilities of NU and its subsidiaries. The statement
defines fair value as the price that would be received to
sell an asset or paid to transfer a liability (an exit price)
in an orderly transaction between market participants at
the measurement date. SFAS No. 157 is required to be
applied to nonrecurring fair value measurements of non-
financial assets and liabilities beginning in 2009, including
asset retirement obligations (ARO) and goodwill and
other impairment analyses. Implementation of SFAS No.
157 to non-financial assets and liabilities is not expected
to have a material impact on the company’s consolidated
financial statements.
D. Revenues
Regulated Companies: The regulated companies’ retail
revenues are based on rates approved by the state
regulatory commissions. In general, rates can only be
changed through formal proceedings with the state
regulatory commissions. The regulated 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.
The regulated companies record monthly, day ahead and
real time energy purchases and sales, net in accordance
with The Emerging Issues Task Force (EITF) Issue No.
03-11, “Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to FASB Statement No. 133
and Not Held for Trading Purposes as defined in EITF
Issue No. 02-3.” Revenues associated with derivative
instruments to purchase and sell in the day ahead and
real time markets are recorded net in revenues and fuel,
purchased and net interchange power.
Regulated Companies’ Unbilled Revenues: Unbilled
revenues represent an estimate of electricity or gas
delivered to customers for which the customers have
not yet been billed. Unbilled revenues are included in
revenue on the statement of income 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 regulated companies estimate 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.
Regulated Companies’ Transmission Revenues -
Wholesale Rates:  Wholesale transmission revenues
are based on formula rates that are approved by the
FERC. Most of NU’s wholesale transmission revenues
are collected under the New England Independent
System Operator (ISO-NE) FERC Electric Tari No. 3,
Transmission, Markets and Services Tari (Tari No.
3). Tari No. 3 includes Regional Network Service
(RNS) and Schedule 21 - NU rate schedules to recover
fees for transmission and other services. The RNS rate,
administered by ISO-NE and billed to all New England
transmission users, is reset on June 1st of each year
and recovers the revenue requirements associated with
transmission facilities that benefit the New England
region. The Schedule 21 - NU rate, administered by NU,
is reset on January 1st and June 1st of each year and
recovers the revenue requirements for local transmission
facilities and other transmission costs not recovered
under the RNS rate, including 100 percent of the
construction work in progress (CWIP) that is included
in rate base on the New England East-West Solutions
(NEEWS) projects. The Schedule 21 - NU rate calculation
recovers total transmission revenue requirements net of
revenues received from other sources (i.e., RNS, rentals,
etc.), thereby ensuring that NU recovers all regional and
local revenue requirements as prescribed in Tari No.
3. Both the RNS and Schedule 21 - NU rates provide for
annual true-ups to actual costs. The financial impacts
of dierences between actual and projected costs are
deferred for future recovery from or refund to customers.
At December31, 2008, the Schedule21 - NU rates were in
a total underrecovery position of $4.6 million that will be
collected from customers in mid-2009.
Regulated Companies’ Transmission Revenues -
Retail Rates: A significant portion of the NU consolidated
transmission segment revenue comes from ISO-NE
charges to the distribution segments of CL&P, PSNH
and WMECO, each of which recovers these costs
through rates charged to their retail customers. CL&P,
PSNH and WMECO each have a retail transmission cost
tracking mechanism as part of their rates, which allows
the companies to charge their retail customers for
transmission costs on a timely basis.
NU Enterprises: NU Enterprises’ revenues are recognized
at dierent times for its dierent business lines. Service
revenues are recognized as services are provided,
often on a percentage of completion basis. Wholesale
marketing revenues are recognized through mark-to-
market accounting on underlying derivative contracts
and recorded in fuel, purchased and net interchange
power. This net presentation of the mark-to-market and
settlement amounts is required because NU Enterprises
cannot assert that physical delivery of contract quantities
is deemed probable.
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