Eversource 2008 Annual Report Download - page 74

6. Goodwill and Other Intangible Assets
SFAS No. 142, “Goodwill and Other Intangible Assets,”
requires that goodwill and intangible assets deemed to
have indefinite useful lives be reviewed for impairment at
least annually by applying a fair value-based test. NU uses
October 1st as the annual goodwill impairment testing
date. However, if an event occurs or circumstances change
that would indicate that goodwill might be impaired,
NU management would test the goodwill between the
annual testing dates. Goodwill impairment is deemed
to exist if the net book value of a reporting unit exceeds
its estimated fair value and if the implied fair value of
goodwill based on the estimated fair value of the reporting
unit is less than the carrying amount.
NU’s reporting units are consistent with the operating
segments underlying the reportable segments identified
in Note 16, “Segment Information,” to the consolidated
financial statements. The only reporting unit that
maintains goodwill is the Yankee Gas reporting unit,
which was classified under the regulated companies - gas
reportable segment. The goodwill recorded related to
the acquisition of Yankee Gas is not being recovered from
the customers of Yankee Gas. The goodwill balance held
by the Yankee Gas reporting unit at December31, 2008
and 2007 is $287.6 million.
NU completed its impairment analysis of the Yankee Gas
goodwill balance as of October 1, 2008 and determined
that no impairment exists. In completing this analysis,
the fair value of the reporting unit was estimated using
a discounted cash flow methodology and analyses of
comparable companies and transactions.
7. Commitments and Contingencies
A. Regulatory Developments and Rate Matters
Connecticut:
CTA and SBC Reconciliation: The CTA allows CL&P
to recover stranded costs, such as securitization costs
associated with its RRBs, amortization of regulatory
assets, and IPP over-market costs, while the SBC allows
CL&P to recover certain regulatory and energy public
policy costs, such as public education outreach costs,
hardship protection costs, transition period property
taxes, and displaced worker protection costs.
On March 31, 2008, CL&P filed with the DPUC its 2007
CTA and SBC reconciliation, which compared CTA and
SBC revenues to revenue requirements. For the 12
months ended December 31, 2007, total CTA revenues
exceeded CTA revenue requirements by $26.1 million,
which has been recorded as a decrease to the CTA
regulatory asset on the accompanying consolidated
balance sheet. For the 12 months ended December31,
2007, the SBC cost of service exceeded SBC revenues by
$39.4 million, which has been recorded as a regulatory
asset on the accompanying consolidated balance sheet.
On December 3, 2008, the DPUC issued a final decision
in this docket that approved the 2007 CTA and SBC
reconciliations with minor modifications. The decision
referred to a potential change in the CTA rate eective
January 1, 2009, when new rates were to be determined
for all CL&P rate components. By letter dated December
23, 2008, the DPUC approved CL&P’s recommendation
to slightly decrease the base CTA rate and to establish
a separate CTA refund credit beginning January 1,
2009. The CTA refund credit is intended to return to
customers over a twelve month period a projected 2008
CTA overrecovery of $46.2 million, plus $1.8 million
of incremental distribution revenues attributable to
accelerating CL&P’s previously allowed 2009 distribution
rate increase from a start date of February1, 2009 to
January 1, 2009. The DPUC also approved an increase
in the SBC rate to bill an additional $11.7 million in 2009,
which should enable CL&P to fully recover 2009 SBC
expenses plus expenses that were underrecovered in
prior periods.
Procurement Fee Rate Proceedings: CL&P was allowed
to collect a fixed procurement fee of 0.50 mills per
kilowatt-hour (KWH) from customers that purchased
TSO service from 2004 through the end of 2006. One
mill is equal to one tenth of a cent. In prior years, CL&P
submitted to the DPUC its proposed methodology to
calculate the variable incentive portion of its transition
service procurement fee, which was eective through
2006, and requested approval of the pre-tax $5.8
million 2004 incentive fee. CL&P has not recorded
amounts related to the 2005 or 2006 procurement fee
in earnings. CL&P recovered the $5.8 million pre-tax
amount, which was recorded in 2005 earnings through
the CTA reconciliation process. On January 15, 2009, the
DPUC issued a final decision confirming its December
2008 draft decision in this docket that reversed its
December 2005 draft decision and stated that CL&P was
not eligible for the procurement incentive compensation
for 2004. A $5.8 million pre-tax charge was recorded in
the 2008 earnings of CL&P, and an obligation to refund
the $5.8 million to customers has been established as of
December 31, 2008. CL&P filed an appeal of this decision
on February26, 2009.
C2 Prudency Audit: Pursuant to the decision in CL&P’s
2007 rate case, the DPUC has hired a consulting firm to
perform a prudency audit of certain costs incurred in the
implementation of a new customer service system (C2) at
CL&P. The audit began on December1, 2008 and will be
ongoing through early 2009, with a final report to the DPUC
due March 31, 2009. The DPUC has stated its intentions
to open a docket to review the findings of the audit after
completion. Management continues to believe that its C2
expenses were prudent and will be recovered in rates.
Purchased Gas Adjustment: In 2005 and 2006, the DPUC
issued decisions regarding Yankee Gas’ PGA clause
charges and required an audit of previously recovered
PGA revenues of approximately $11 million associated
with unbilled sales and revenue adjustments for the
period of September 1, 2003 through August 31, 2005.
On June 11, 2008, the DPUC issued a final order requiring
Yankee Gas to refund approximately $5.8 million in
previous recoveries to its customers. The $5.8 million
pre-tax charge was recorded in the 2008 earnings of
Yankee Gas.
New Hampshire:
ES and SCRC Reconciliation: On an annual basis, PSNH
files with the NHPUC an ES and stranded cost recovery
charge (SCRC) reconciliation filing for the preceding
year. On May 1, 2008, PSNH filed its 2007 ES and SCRC
reconciliation with the NHPUC, whose evaluation includes
a prudence review of PSNH’s generation activities. During
2007, ES and SCRC revenues exceeded ES and SCRC
costs by $1.4 million and $6.8 million, respectively, and
were deferred as a regulatory liability to be refunded to
customers. On November 19, 2008, PSNH and the NHPUC
Sta submitted a settlement agreement that resolved all
outstanding issues. The NHPUC issued an order dated
January16, 2009 that accepted the settlement as filed.
The settlement agreement and subsequent order did
not have a material adverse impact on PSNH’s financial
position or results of operations.
Massachusetts:
Transition Cost Reconciliation: On July 18, 2008, WMECO
filed its 2007 transition cost (TC) reconciliation with
the DPU, which compared TC revenue and revenue
requirements. For the twelve months ended December31,
2007, total TC revenues along with carrying charges
exceeded TC revenue requirements by $2.6 million,
which has been recorded as a regulatory liability on
the accompanying consolidated balance sheets. A
public hearing and procedural conference was held
on November20, 2008. On December 22, 2008, the
Massachusetts Attorney General filed testimony on two
topics, the deferred return and carrying charges on
the Capital Project Scheduling List and the recovery of
Northeast Nuclear Company pension/PBOP costs. WMECO
filed rebuttal testimony on December30, 2008. A hearing
was held January 29, 2009. The briefing period ended on
February 26, 2009. There is no timeline for a DPU decision.
Management does not expect the outcome of the DPU’s
review of this filing to have a material adverse eect on
WMECO’s financial position or results of operations.
B. Environmental Matters
General: NU is subject to environmental laws and
regulations intended to mitigate or remove the eect of
past operations and improve or maintain the quality of
the environment. These laws and regulations require the
removal or the remedy of the eect on the environment
of the disposal or release of certain specified hazardous
substances at current and former operating sites. As such,
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