Eversource 2008 Annual Report Download - page 58

Regulatory Liabilities: The components of regulatory liabilities are as follows:
At December 31,
(Millions of Dollars) 2008 2007
Cost of removal $226.0 $262.6
Regulatory liabilities offsetting
regulated company derivative assets 137.8 330.4
CL&P overcollections 69.5 119.2
CL&P AFUDC transmission
incentive (Note 1K) 47.6 21.4
PSNH deferred ES revenue, net 33.0 17.6
Pension and PBOP liabilities -
Yankee Gas acquisition 17.6 20.7
Overrecovered gas costs 16.9 10.4
Other regulatory liabilities 44.1 69.5
Totals $592.5 $851.8
Cost of Removal: NU’s regulated companies currently recover amounts in rates for
future costs of removal of plant assets. These amounts are classified as regulatory
liabilities on the accompanying consolidated balance sheets. This liability is included in
rate base.
Regulatory Liabilities Osetting Regulated Company Derivative Assets: The regulatory
liabilities osetting derivative assets relate to the fair value of contracts used to
purchase power and other related contracts that will benefit ratepayers in the future.
See Note3, “Derivative Instruments,” to the consolidated financial statements for further
information. This liability is excluded from rate base.
CL&P Overcollections: As noted previously, the CTA allows CL&P to recover stranded
costs, the GSC allows CL&P to recover the costs of the procurement of energy for
standard service and the FMCC allows CL&P to recover the costs of power market rules
by the FERC. At December 31, 2008, CTA overcollections totaled $69.5 million and were
recorded as a regulatory liability while GSC and FMCC undercollections totaled $31.9
million and was recorded as a regulatory asset. At December 31, 2007, GSC and FMCC
overcollections totaled $119.2 million and was recorded as a regulatory liability while CTA
undercollections totaled $54 million and was recorded as a regulatory asset.
PSNH Deferred ES Revenue, Net: PSNH default energy service (ES) revenues and costs
are fully tracked, and the dierence between ES revenues and costs are deferred. ES
deferrals are being collected from/refunded to customers through a charge/(credit) in
the subsequent ES rate period.
Pension and PBOP Liabilities - Yankee Gas Acquisition: When Yankee Gas was acquired
by NU, the Pension and PBOP liabilities were adjusted to fair value with osets to
these adjustments recorded as regulatory liabilities, as approved by the Connecticut
Department of Public Utility Control (DPUC).
Overrecovered Gas Costs: The Yankee Gas regulated rates include a Purchased Gas
Adjustment (PGA) clause under which gas costs below base rate levels calculated
annually on August 31st are returned to customers. Dierences between the actual gas
costs and the current base rate recovery amounts are deferred and returned in future
periods.
H. Income Taxes
The tax eect of temporary dierences is accounted for in accordance with the rate-
making treatment of the applicable regulatory commissions, SFAS No. 109 and FIN48.
Details of income tax expense/(benefit) related to continuing operations are as follows:
For the Years Ended December 31,
(Millions of Dollars) 2008 2007 2006
The components of the federal and state income
tax provisions are:
Current income taxes:
Federal $ 6.0 $ 89.3 $ 59.7
State 16.3 18.9 (19.1 )
Total current 22.3 108.2 40.6
Deferred income taxes, net:
Federal 100.2 26.2 (49.7 )
State (13.4 ) (21.4 ) (4.2 )
Total deferred 86.8 4.8 (53.9 )
Investment tax credits, net (3.4 ) (3.6) (63.0 )
Income tax expense/(benefit) $ 105.7 $ 109.4 $ (76.3 )
A reconciliation between income tax expense/(benefit) and the expected tax expense/
(benefit) at the statutory rate is as follows:
For the Years Ended December 31,
(Millions of Dollars, except percentages) 2008 2007 2006
Income from continuing operations before income
tax expense/(benefit) $ 372.0 $ 360.9 $ 62.2
Expected federal income tax expense/(benefit) 130.2 126.3 21.7
Tax effect of differences:
Depreciation (12.9 ) (6.6 ) (4.0 )
Amortization of regulatory assets 0.2 0.2 13.3
Investment tax credit amortization
(including $59.3 million in 2006
related to the CL&P PLR) (3.4 ) (3.6 ) (63.0 )
Other federal tax credits (4.6 ) (4.2 ) (0.3 )
State income taxes, net of federal impact (9.5 ) (9.6 ) (16.8 )
Excess deferred income taxes - CL&P PLR - - (14.7 )
Deferred tax adjustment - sale to affiliate - - (6.0 )
Medicare subsidy (4.2 ) (4.4 ) (5.5 )
Tax asset valuation allowance/reserve adjustments 12.5 10.5 1.4
Other, net (2.6 ) 0.8 (2.4 )
Income tax expense/(benefit) $ 105.7 $ 109.4 $ (76.3 )
Effective tax rate 28.4% 30.3% * %
*Not meaningful.
NU and its subsidiaries file a consolidated federal income tax return and file state income
tax returns, with some filing in more than one state. These entities are also parties to a
tax allocation agreement under which taxable subsidiaries do not pay any more taxes
than they would have otherwise paid had they filed a separate company tax return, and
subsidiaries generating tax losses, if any, are paid for their losses when utilized.
In 2000, CL&P requested from the Internal Revenue Service (IRS) a Private Letter Ruling
(PLR) regarding the treatment of unamortized investment tax credits (UITC) and excess
deferred income taxes (EDIT) related to generation assets that were sold. In 2006, the
IRS issued a PLR in response to CL&P’s request for a ruling, which held that it would be
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