Eversource 2008 Annual Report Download - page 60

A reconciliation of the activity in unrecognized tax
benefits from January 1, 2007 to December 31, 2008 is as
follows:
(Millions of Dollars)
Balance at January 1, 2007 $ 86.1
Gross increases - current year 25.0
Gross increases - prior year 10.6
Lapse of statute of limitations (0.6)
Balance at December 31, 2007 121.1
Gross increases - current year 28.6
Gross increases - prior year 7.4
Lapse of statute of limitations (0.8)
Balance at December 31, 2008 $ 156.3
Tax Positions: In September 2008, NU and the IRS
reached a settlement agreement related to the timing
for deducting certain costs. This agreement closed the
federal tax years 2002 through 2004 and resulted in
a refund of $123 million less a $35 million payment for
2005. The issues regarding the timing for deducting
these costs are also subject to review during the 2005
through 2007 IRS federal audit cycle and therefore are not
considered eectively settled for years after 2004. While
this settlement resulted in $10.1 million of pre-tax interest
income, it did not have a significant impact on income tax
expense. NU is currently working to resolve certain tax
matters regarding the timing for certain deductions in the
open federal tax years. While discussions are currently
ongoing with federal and state taxing authorities, it is
reasonably possible that one or more of these open tax
years could be resolved within the next twelve months.
Management estimates that potential resolutions, which
are primarily related to timing dierences, could result in
a $2 million to $42 million decrease in unrecognized tax
benefits. These estimated changes are related to timing,
as well as state tax impacts, which could have an impact
on earnings of $1 million to $4 million in 2009.
Tax Years: The following table summarizes NU’s tax
years that remain subject to examination by major tax
jurisdictions at December31, 2008:
Description Tax Years
Federal 2005 - 2008
Connecticut 1997 - 2008
New Hampshire 2005 - 2008
Massachusetts 2005 - 2008
I. Property, Plant and Equipment and
Accumulated Depreciation
The following table summarizes NU’s investments in utility
plant at December 31, 2008 and 2007 and the average
depreciable life at December 31, 2008:
Average At December 31,
Depreciable Life 2008 2007
(Years ) (Millions of Dollars)
Distribution 33.7 $6,644.4 $6,230.3
Transmission 59.6 2,981.2 1,751.1
Generation 31.6 637.5 590.5
Competitive energy 5.6 12.8 18.7
Other 18.0 277.3 291.8
Total property, plant
and equipment 10,553.2 8,882.4
Less: Accumulated
depreciation 2,770.1 2,661.8
Net property, plant
and equipment 7,783.1 6,220.6
Construction work in progress 424.8 1,009.3
Total property, plant and
equipment, net $8,207.9 $7,229.9
NU uses the direct expense method to account for
planned major maintenance expenses primarily related
to generation at PSNH. NU charges planned major
maintenance activities to operating expense unless the
cost represents the acquisition of additional components.
NU capitalizes the cost of plant additions.
In 2008, NU entered into certain equipment purchase
contracts that required the company to make advance
payments during the design, manufacturing, shipment
and installation of equipment. As of December 31,
2008, these advance payments totaled $13.8 million and
are included in construction work in progress on the
accompanying consolidated balance sheets.
The provision for depreciation on utility assets is
calculated using the straight-line method based on the
estimated remaining useful lives of depreciable plant
in-service, adjusted for salvage value and removal costs,
as approved by the appropriate regulatory agency,
where applicable. Depreciation rates are applied to
plant-in-service from the time it is placed in service.
When a plant is retired from service, the original cost of
the plant is charged to the accumulated provision for
depreciation, which includes cost of removal less salvage.
Cost of removal is classified as a regulatory liability. The
depreciation rates for the several classes of utility plant-
in-service are equivalent to composite rates of 3 percent
in 2008 and 3.2 percent in 2007 and 2006.
J. Equity Method Investments
Regional Nuclear Companies: At December 31, 2008,
CL&P, PSNH and WMECO owned common stock in three
regional nuclear companies (Yankee Companies). Each of
the Yankee Companies owned a single nuclear generating
plant that has been decommissioned. NU’s ownership
interests in the Yankee Companies at December 31, 2008,
which are accounted for on the equity method, are 49
percent of CYAPC, 38.5 percent of YAEC and 20 percent
of MYAPC.
The total carrying value of NU’s ownership interests in
CYAPC, YAEC and MYAPC, which is included in deferred
debits and other assets - other on the accompanying
consolidated balance sheets and the regulated companies
- electric distribution reportable segment, totaled $7.2
million and $6.6 million at December 31, 2008 and 2007,
respectively.
Net earnings related to these equity investments are
included in other income, net on the accompanying
consolidated statements of income. For further
information, see Note 1R, “Summary of Significant
Accounting Policies - Other Income, Net,” to the
consolidated financial statements.
For further information, see Note 7E, “Commitments and
Contingencies - Deferred Contractual Obligations,” to the
consolidated financial statements.
Hydro-Québec: NU parent has a 22.7 percent equity
ownership interest in two companies that transmit
electricity imported from the Hydro-Québec system
in Canada. NU parent’s investment, which is included
in deferred debits and other assets - other on the
accompanying consolidated balance sheets, totaled $7.2
million and $7.6 million at December 31, 2008 and 2007,
respectively.
The application of the equity method is considered
the appropriate method to account for the Yankee
Companies and the Hydro-Québec investments because
NU has the ability to exercise significant influence over
the investees’ operating and financial policies.
K. Allowance for Funds Used During Construction
Allowance for funds used during construction (AFUDC)
is included in the cost of the regulated companies’ utility
plant and represents the cost of borrowed and equity
funds used to finance construction. The portion of
AFUDC attributable to borrowed funds is recorded as
a reduction of other interest expense, and the AFUDC
related to equity funds is recorded as other income, net
on the accompanying consolidated statements of income.
59