Eversource 2008 Annual Report Download - page 59

a violation of tax regulations if the EDIT or UITC are used to reduce customers’ rates
following the sale of the generation assets. CL&P’s UITC and EDIT balances related to
generation assets that had been sold totaled $59 million and $15 million, respectively,
and $74 million combined. Later in 2006, the DPUC determined that the UITC and EDIT
amounts were no longer required to be held in their existing accounts. As a result of
this determination, the $74 million balance was reflected as a reduction to CL&P’s 2006
income tax expense with an increase to CL&P’s earnings by the same amount.
Included in 2006 amortization of regulatory assets above is $13 million associated
with PSNH’s restructuring settlement agreement, which was implemented in 2001. In
accordance with the provisions of the restructuring settlement, pre-tax amortization of
PSNH non-deductible acquisition costs was $38 million in 2006.
The tax eects of temporary dierences that give rise to the current and long-term net
accumulated deferred tax obligations are as follows:
At December 31,
(Millions of Dollars) 2008 2007
Deferred tax liabilities - current:
Derivative asset and change in fair value of energy contracts $ 12.5 $ 21.9
Property tax accruals and other 47.5 52.2
Total deferred tax liabilities - current 60.0 74.1
Deferred tax assets - current:
Derivative liability and change in fair value of energy contracts 42.4 11.0
Allowance for uncollectible accounts and other 35.3 22.7
Total deferred tax assets - current 77.7 33.7
Net deferred tax (assets)/liabilities - current (17.7) 40.4
Deferred tax liabilities - long-term:
Accelerated depreciation and other plant-related differences 1,155.4 967.5
Employee benefits 3.8 167.8
Regulatory amounts:
Securitized contract termination costs 135.3 167.0
Other regulatory deferrals 875.8 93.9
Income tax gross-up 192.6 194.7
Derivative assets 88.1 111.1
Other 10.7 66.5
Total deferred tax liabilities - long-term 2,461.7 1,768.5
Deferred tax assets - long-term:
Regulatory deferrals 168.2 192.2
Employee benefits 481.3 280.3
Income tax gross-up 29.0 34.0
Derivative liability 364.8 54.2
Other 211.3 164.6
Total deferred tax assets - long-term 1,254.6 725.3
Less: valuation allowance 16.4 24.3
Net deferred tax assets - long-term 1,238.2 701.0
Net deferred tax liabilities - long-term 1,223.5 1,067.5
Net deferred tax liabilities $ 1,205.8 $ 1,107.9
Net deferred tax (assets)/liabilities - current are recorded as current assets or liabilities
and are included in prepayments and other or current liabilities - other, respectively, on
the accompanying consolidated balance sheets.
At December 31, 2008, NU had state net operating loss (NOL) carryforwards of $269.1
million that expire between December 31, 2010 and December 31, 2028 and state credit
carryforwards of $90.8 million that expire by December 31, 2013. At December 31, 2007,
NU had state NOL carryforwards of $434.1 million that expire between December 31,
2009 and December 31, 2027 and state credit carryforwards of $61.3 million that expire
by December 31, 2012. The NOL carryforward deferred tax asset has been fully reserved
by a valuation allowance.
On July 3, 2008, Massachusetts amended its corporate excise tax provisions, which
are eective for tax years beginning on or after January 1, 2009. Companies, including
WMECO, must account for the impact of income tax law changes in the period that
includes the enactment date of the law change. As a result, NU recorded an estimate
of the impact of the new legislation as a $11.9 million decrease to deferred tax liabilities
and a decrease to regulatory assets on its consolidated balance sheet as of December
31, 2008.
Eective on January 1, 2007, NU and its subsidiaries implemented FIN 48. FIN 48
applies to all income tax positions previously filed in a tax return and income tax
positions expected to be taken in a future tax return that have been reflected on
the balance sheets. FIN 48 addresses the methodology to be used prospectively
in recognizing, measuring and classifying the amounts associated with income tax
positions that are deemed to be uncertain, including related interest and penalties.
Previously, NU recorded estimates for uncertain tax positions in accordance with SFAS
No.5, “Accounting for Contingencies.”
As a result of implementing FIN 48, NU recognized a cumulative eect of a change in
accounting principle of $41.8 million as a reduction to the January 1, 2007 balance of
retained earnings.
Interest and Penalties: Eective on January 1, 2007, the accounting policy for the
classification of interest and penalties related to FIN 48 is as follows:
Interest on uncertain tax positions is recorded and generally classified as a component
of other interest expense. However, when resolution of uncertainties results in the
company receiving interest income, any related interest benefit is recorded in other
income, net on the accompanying consolidated statements of income. No penalties
have been recorded under FIN 48. If penalties are recorded in the future, then the
estimated penalties would be classified as a component of other income, net on the
accompanying consolidated statements of income. As of December 31, 2008 and 2007,
NU recognized accrued interest expense of $38.7 million and $21.8 million, respectively,
on the accompanying consolidated balance sheets. For the years ended December 31,
2008 and 2007, NU recognized other interest expense of $8.2 million and $2.4 million,
respectively, on the accompanying consolidated statements of income.
Unrecognized Tax Benefits: Upon adoption of FIN 48 on January 1, 2007, NU had
unrecognized tax benefits totaling $86.1 million, of which $69.5 million would impact
the eective tax rate, if recognized. As of December 31, 2008 and 2007, the portion of
unrecognized tax benefits that would impact the eective tax rate, if recognized, was
$120 million and $93 million, respectively.
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