Eversource 2008 Annual Report Download - page 67

(Millions of Dollars)
Derivatives, Net:
Fair value at January 1, 2008 (1) $ (511.1 )
Net realized/unrealized gains included in:
Earnings (2) 12.0
Regulatory assets/liabilities (138.0 )
Purchases, issuances and
settlements (32.1 )
Fair value at December 31, 2008 $ (669.2 )
Period change in unrealized gains
included in earnings relating to
items held at December 31, 2008 $ 7.0
(1) Amounts as of January 1, 2008 reflect fair values after initial
adoption of SFAS No. 157. As a result of implementing SFAS
No. 157, the company recorded an increase to derivative
liabilities and a pre-tax charge to earnings of $6.1 million
as of January 1, 2008 related to NU Enterprises’ remaining
derivative contracts. The company also recorded changes
in fair value of CL&P’s CfD and IPP contracts, resulting in
increases to derivative liabilities of approximately $590
million, with an oset to regulatory assets and a decrease to
derivative assets of approximately $30 million with an oset
to regulatory liabilities.
(2) Realized and unrealized gains and losses on derivatives
included in earnings relate to the remaining Select Energy
wholesale marketing contracts and are reported in fuel,
purchased and net interchange power on the accompanying
consolidated statements of income.
5. Employee Benefits
A. Pension Benefits and Postretirement Benefits
Other Than Pensions
On December31, 2006, NU implemented SFAS No. 158,
which applies to NU’s Pension Plan, SERP, and PBOP
Plan and required NU to record the funded status
of these plans on the consolidated balance sheets,
based on the dierence between the projected benefit
obligation (PBO) for the Pension Plan and accumulated
postretirement benefit obligation (APBO) for the PBOP
Plan and the fair value of plan assets. At December
31, 2008, the fair values of plan assets are measured in
accordance with SFAS No. 157. SFAS No. 158 requires
the additional liability to be recorded with an oset
to accumulated other comprehensive income in
shareholders’ equity. This amount is remeasured annually,
or as circumstances dictate.
At December31, 2008 and 2007, NU recorded an after-tax
charge/(benefit) totaling $38 million and $(8.6) million,
respectively, to accumulated other comprehensive income
for its unregulated subsidiaries. However, because the
regulated companies are cost-of-service, rate regulated
entities under SFAS No. 71, regulatory assets were recorded
in the amount of $1.1 billion and $201.4 million, respectively,
as these benefits expense amounts have been and continue
to be recoverable in cost-of-service, regulated rates.
Regulatory accounting was also applied to the portions of
the NUSCO costs that support the regulated companies, as
these amounts are also recoverable.
Pension Benefits: NU sponsors a single uniform
noncontributory defined benefit retirement plan (Pension
Plan) under ERISA covering substantially all regular
employees of NU and its subsidiaries. Benefits are
based on years of service and the employees’ highest
eligible compensation during 60 consecutive months
of employment. NU allocates net periodic pension
expense to its subsidiaries based on the actual participant
demographic data for each subsidiary’s participants.
Benefit payments to participants and contributions are
also tracked by the trustee for each subsidiary. The actual
investment return for the trust each year is allocated to
each of the subsidiaries in proportion to the investment
return expected to be earned during the year. NU uses a
December 31st measurement date for the Pension Plan.
Pension expense aecting earnings is as follows:
For the Years Ended December 31,
(Millions of Dollars) 2008 2007 2006
Total pension expense $2.4 $17.1 $50.2
Income/(expense) capitalized
as utility plant 4.9 1.0 (11.5 )
Total pension expense, net
of amounts capitalized $7.3 $18.1 $38.7
Pension Curtailments and Termination Benefits: In
December 2005, a new program was approved allowing
then current employees to elect to receive retirement
benefits under a new 401(k) benefit rather than under
the Pension Plan. The approval of the new plan resulted
in recording an estimated pre-capitalization, pre-tax
curtailment expense in 2005, as a certain number of
employees were expected to elect the new 401(k) benefit,
resulting in a reduction in aggregate estimated future
years of service under the Pension Plan. Because the
predicted level of elections of the new benefit did not
occur, NU recorded a pre-capitalization, pre-tax reduction
in the curtailment expense of $3.6 million in 2006.
As a result of its corporate reorganization in 2005,
NU recorded a combined pre-capitalization, pre-tax
curtailment expense and related termination benefits
for the Pension Plan. Based on a revised estimate of
expected head count reductions in 2006, NU recorded
an adjustment to the curtailment and related termination
benefits. This adjustment resulted in a pre-capitalization,
pre-tax reduction in the curtailment expense of $1.2
million and an increase in termination benefits expense of
$2.3 million totaling a net $1.1million in additional pension
expense. NU recorded an additional pre-capitalization,
pre-tax reduction in termination benefit expense of
$0.3 million in 2007.
Pension Plan COLA: On May 4, 2007, NU’s Board of
Trustees approved a cost of living adjustment (COLA)
that increased retiree pension benefits for certain
participants in the Pension Plan. The COLA was
announced on May 8, 2007 at the annual meeting of NU’s
shareholders, which resulted in a plan amendment in
2007 and a remeasurement of the Pension Plan’s benefit
obligation as of May8, 2007. The COLA increased the
Pension Plan’s benefit obligation by $40 million and was
reflected as a prior service cost and as a decrease in the
funded status of the Pension Plan. This amount will be
amortized over a 12-year period representing average
remaining service lives of employees.
Actuarial Determination of Expense: Pension and PBOP
expense consists of the service cost and prior service
cost determined by actuaries, the interest cost based on
the discounting of the obligations and the amortization
of the net transition obligation, oset by the expected
return on plan assets. Pension and PBOP expense also
includes amortization of actuarial gains and losses, which
represent dierences between assumptions and actual or
updated information.
The expected return on plan assets is calculated by
applying the assumed rate of return to a four-year rolling
average of plan asset fair values, which reduces year-to-
year volatility. This calculation recognizes investment
gains or losses over a four-year period from the year
in which they occur. Investment gains or losses for
this purpose are the dierence between the calculated
expected return and the actual return based on the
change in the fair value of assets during the year. As
investment gains and losses are reflected in the average
plan asset fair values, they are subject to amortization
with other unrecognized gains/losses. Unrecognized
gains/losses are amortized as a component of pension
and PBOP expense over approximately 12 years, which
is the average future service period of the employees at
December 31, 2008.
SERP: NU has maintained a SERP since 1987. The
SERP provides its eligible participants who are ocers
of NU with benefits that would have been provided
to them under NU’s retirement plan if certain Internal
Revenue Code and other limitations were not imposed.
NU allocates net periodic SERP benefit costs to its
subsidiaries based upon actuarial calculations by
participant.
Although the company maintains a trust to support the
SERP with marketable securities held in the supplemental
benefit trust, the plan itself does not contain any
assets. For information regarding the investments in the
supplemental benefit trust that are used to support the
SERP liability, see Note 9 “Marketable Securities,” to the
consolidated financial statements.
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