Eversource 2008 Annual Report Download - page 61

For the Years Ended December 31,
(Millions of Dollars,
except percentages) 2008 2007 2006
AFUDC:
Borrowed funds $17.8 $17.5 $13.5
Equity funds 29.0 17.4 13.6
Totals $46.8 $34.9 $27.1
Average AFUDC rates 8.1% 7.6% 7.5%
The regulated companies’ average AFUDC rate is based on a FERC-prescribed formula
that produces an average rate using the cost of a company’s short-term financings
as well as a company’s capitalization (preferred stock, long-term debt and common
equity). The average rate is applied to average eligible CWIP amounts to calculate
AFUDC. Although AFUDC was recorded on 100 percent of CL&P’s CWIP for its major
transmission projects in southwest Connecticut, 50 percent of this AFUDC was being
reserved as a regulatory liability to reflect current rate base recovery for 50 percent of
the CWIP as a result of FERC approved transmission incentives. AFUDC is also recorded
on 100 percent of CL&P’s and WMECO’s CWIP for their NEEWS projects, all of which
is being reserved as a regulatory liability to reflect current rate base recovery for 100
percent of the CWIP as a result of FERC approved transmission incentives.
L. Sale of Customer Receivables
Prior to June30, 2008, under the Receivables Purchase and Sale Agreement, CRC, a
consolidated, wholly-owned subsidiary of CL&P, purchased an undivided interest in
CL&P’s accounts receivable and unbilled revenues and could sell up to $100 million
thereof to a financial institution. At December 31, 2007, there were $20 million in such
sales. On June 30, 2008, CL&P terminated the Receivables Purchase and Sale Agreement,
and there are no receivables sold under that facility.
At December 31, 2007, amounts totaling $308.2 million sold to CRC by CL&P but not
sold to the financial institution were included in investments in securitizable assets on the
accompanying consolidated balance sheet. These amounts would have been excluded
from CL&P’s assets in the event of bankruptcy by CL&P. Since CL&P chose to terminate
the Receivables Purchase and Sale Agreement on June30, 2008, all such amounts are
now included gross in accounts receivables and unbilled revenues on the accompanying
consolidated balance sheet as of December 31, 2008 with $17.5 million of bad debt
expense recorded in the provision for uncollectible accounts, which previously oset the
investments in securitizable assets balance.
In 2007, the transfer of receivables to the financial institution under this arrangement
qualified for sale treatment under SFAS No. 140, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities - A Replacement of SFAS No. 125.”
M. Asset Retirement Obligations
NU and its subsidiaries implemented FIN 47 on December 31, 2005. FIN 47 requires an
entity to recognize a liability for the fair value of an ARO on the obligation date if the
liability’s fair value can be reasonably estimated and is conditional on a future event.
FIN 47 provides that settlement dates and future costs should be reasonably estimated
when sucient information becomes available and provides guidance on the definition
and timing of sucient information in determining expected cash flows and fair values.
Management has identified various categories of AROs, primarily certain assets containing
asbestos and hazardous contamination. A fair value calculation, reflecting expected
probabilities for settlement scenarios, has been performed.
The fair value of the AROs is recorded as a liability in deferred credits and other liabilities
- other with an oset included in property, plant and equipment on the accompanying
consolidated balance sheets. The ARO assets are depreciated, and the ARO liabilities are
accreted over the estimated life of the obligation with corresponding credits recorded
as accumulated depreciation and ARO liabilities, respectively. Both the depreciation
and accretion were recorded as increases to regulatory assets on the accompanying
consolidated balance sheets at December 31, 2008 and 2007.
As the regulated companies are cost-of-service, rate regulated entities, these companies
apply regulatory accounting in accordance with SFAS No. 71, and the costs associated
with the regulated companies’ AROs were included in other regulatory assets at
December31, 2008 and 2007.
The following tables present the ARO asset, the related accumulated depreciation, the
regulatory asset, and the ARO liabilities at December 31, 2008 and 2007:
At December 31, 2008
Accumulated
Depreciation of Regulatory ARO
(Millions of Dollars) ARO Asset ARO Asset Asset Liabilities
Asbestos $ 2.7 $(1.6) $20.7 $(22.6)
Hazardous contamination 5.1 (1.4) 15.2 (19.4)
Other AROs 4.0 (2.0) 6.4 (8.6)
Total AROs $11.8 $(5.0) $42.3 $(50.6)
At December 31, 2007
Accumulated
Depreciation of Regulatory ARO
(Millions of Dollars) ARO Asset ARO Asset Asset Liabilities
Asbestos $ 2.7 $(1.6) $19.6 $(21.3)
Hazardous contamination 4.5 (1.2) 13.7 (17.3)
Other AROs 6.8 (3.0) 7.3 (11.1)
Total AROs $14.0 $(5.8) $40.6 $(49.7)
A reconciliation of the beginning and ending carrying amounts of regulated companies’
AROs is as follows:
(Millions of Dollars) 2008 2007
Balance at beginning of year $(49.7 ) $(59.7 )
Liabilities incurred during the year (1.8 ) (2.8 )
Liabilities settled during the year 3.6 7.3
Accretion (3.2 ) (1.3 )
Changes in estimates - 7.9
Revisions in estimated cash flows 0.5 (1.1 )
Balance at end of year $(50.6 ) $(49.7 )
Changes in estimates and revisions in estimated cash flows supporting the carrying
amounts of AROs include changes in estimated quantities and removal costs, discount
rates and inflation rates.
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